Notice of Proposed Exemption; BlackRock, Inc. and Its Investment Advisory, Investment Management and Broker-Dealer Affiliates and Their Successors (Applicants) Located in New York, NY
[3/18/2011]
[PDF]

FR Doc 2011-6044

[Federal Register: March 18, 2011 (Volume 76, Number 53)]
[Notices]
[Page 15057-15104]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18mr11-175]
[[Page 15057]]
Vol. 76
Friday,
No. 53
March 18, 2011
Part II
Department of Labor
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Employee Benefits Security Administration
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Notice of Proposed Exemption; BlackRock, Inc. and Its Investment
Advisory, Investment Management and Broker-Dealer Affiliates and Their
Successors (Applicants) Located in New York; Notice
[[Page 15058]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11588]
Notice of Proposed Exemption; BlackRock, Inc. and Its Investment
Advisory, Investment Management and Broker-Dealer Affiliates and Their
Successors (Applicants) Located in New York, NY
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed exemption.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed individual exemption
from certain prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), the Federal
Employees' Retirement System Act of 1986, as amended (FERSA), and the
Internal Revenue Code of 1986, as amended (the Code). The proposed
transactions involve BlackRock, Inc. and its investment advisory,
investment management and broker-dealer affiliates and their
successors. The proposed exemption, if granted, would affect plans for
which BlackRock, Inc. and its investment advisory, investment
management and broker-dealer affiliates and their successors serve as
fiduciaries, and the participants and beneficiaries of such plans.
DATES: Effective Date: If granted, this proposed exemption will be
effective as of December 1, 2009.
Written Comments and Hearing Requests: All interested persons are
invited to submit written comments and/or requests for a hearing on the
proposed exemption within forty-five (45) days from the date of the
publication of this Federal Register Notice. Comments and requests for
a hearing should state: (1) The name, address and telephone number of
the person making the comment or the request for a hearing and (2) the
nature of the person's interest in the proposed exemption and the
manner in which the person would be adversely affected by the proposed
exemption. A request for a hearing must also state the issues to be
addressed at the requested hearing and include a general description of
the evidence to be presented at the requested hearing.
ADDRESSES: All written comments and requests for a public hearing
concerning the proposed exemption should be sent to the Office of
Exemption Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 202010, Attention: Application No. D-11588. Interested
persons are also invited to submit comments and/or hearing requests to
the Employee Benefits Security Administration by e-mail or FAX. Any
such comments or requests should be sent either to:
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the
scheduled comment period. The application for exemption and the
comments received will be available for inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
Warning: If you submit written comments or hearing requests, do not
include any personally-identifiable or confidential business
information that you do not want to be publicly-disclosed. All comments
and hearing requests are posted on the Internet exactly as they are
received, and they can be retrieved by most Internet search engines.
The Department will make no deletions, modifications or redactions to
the comments or hearing requests received, as they are public records.
FOR FURTHER INFORMATION CONTACT: Brian L. Shiker, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone (202) 693-8552. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: This document contains a notice of proposed
individual exemption from the restrictions of ERISA sections 406(a)(1)
and 406(b), FERSA sections 8477(c)(1) and (c)(2) and the sanctions
resulting from the application of Code section 4975, by reason of Code
section 4975(c)(1). The proposed exemption has been requested by
BlackRock, Inc. and its investment advisory, investment management and
broker-dealer affiliates and their successors pursuant to ERISA section
408(a), Code section 4975(c)(2) and FERSA section 8477(c)(3), and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(55 FR 32836, 32847, August 10, 1990). Effective December 31, 1978,
section 102 of the Reorganization Plan No. 4 of 1978, (43 FR 47713,
October 17, 1978) transferred the authority of the Secretary of the
Treasury to issue exemptions of the type requested to the Secretary of
Labor. Accordingly, this proposed exemption is being issued solely by
the Department.
Summary of Facts and Representations \1\
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\1\ Capitalized terms used but not defined in the Summary of
Facts and Representations have the meaning set forth in Section VI
of the proposed exemption.
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1. BlackRock, Inc. (BlackRock), based in New York, NY, is the
largest publicly-traded investment management firm in the United
States. BlackRock, through its investment advisory and investment
management subsidiaries, currently manages assets for institutional and
individual investors worldwide through a variety of equity, fixed
income, cash management and alternative investment products. As of
September 30, 2010, BlackRock, through its advisor subsidiaries, had
approximately $3.446 trillion in assets under management, including
assets managed by BlackRock Institutional Trust Company, N.A. (BTC)
(formerly known as Barclays Global Investors, N.A. (BGI)) and its
affiliates. The Applicants \2\ together with any other entity presently
or subsequently under the direct or indirect control, through one or
more intermediaries, of BlackRock and successors of any of the
foregoing are referred to herein as the ``BlackRock Entities.''
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\2\ For purposes of this application, references to the
``Applicants'' include each of the banks, investment advisors and
investment managers directly or indirectly, through one or more
intermediaries, under the control of BlackRock, and any other bank,
investment advisor or investment manager which subsequently becomes
directly or indirectly, through one or more intermediaries, under
the control of BlackRock, and successors of the foregoing. As of the
date hereof, banks, investment advisors and investment managers
under the control of BlackRock include, but are not limited to,
BlackRock Advisors, LLC, BlackRock Financial Management, Inc.,
BlackRock Capital Management, Inc., BlackRock Institutional
Management Corporation, BlackRock International, Ltd., State Street
Research and Management Company, BlackRock Realty Advisors, Inc.,
BlackRock Investment Management, LLC, BlackRock Fund Advisors, and
BTC (collectively, the BlackRock Managers). ``Applicants'' also
includes broker-dealers presently or subsequently under the direct
or indirect control, through one or more intermediaries, of
BlackRock.
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2. BTC is a national banking association headquartered in San
Francisco, California. Prior to its acquisition by BlackRock on
December 1, 2009 (the Acquisition), BTC (then BGI) was the largest
asset manager in the U.S. A significant amount of BTC's assets under
management in the U.S. consist of assets of employee benefit plans
subject to ERISA, FERSA and/or the Code. BTC is a market leader in
index and model-driven investment products. Until its sale to
BlackRock, BGI was an indirect subsidiary of Barclays PLC, a public
limited company
[[Page 15059]]
organized under the laws of England and Wales. BTC, as of the date of
the Acquisition, is now a wholly-owned subsidiary of BlackRock.
3. The Applicants represent that they are regulated by various
federal government agencies such as the SEC and the Office of the
Comptroller of the Currency, as well as state government agencies and
industry self-regulatory organizations (e.g., the Financial Industry
Regulatory Authority or, in the case of some broker-dealers and banks,
corresponding foreign regulatory authorities). As with the Applicants,
each of (a) Barclays PLC (Barclays), (b) Bank of America Corporation
(BOA), (c) The PNC Financial Services Group, Inc. (PNC), and (d) each
entity directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with one or more of
Barclays, BOA or PNC \3\ has previously made representations to the
Department regarding the significant extent to which they are
regulated.\4\
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\3\ Each of Barclays, BOA and PNC is a ``Minority Passive
Shareholder'' or ``MPS,'' but, for avoidance of doubt, an MPS does
not include any BlackRock Entity.
\4\ See applications associated with PTE 2009-25, 74 FR 45300
(September 1, 2009) (Barclays); PTE 2009-22, 74 FR 45284 (September
1, 2009) (PNC); and proposed exemption for application D-11576, 75
FR 61932 (October 6, 2010) (Bank of America/Merrill Lynch).
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The Acquisition
4. There have recently occurred extraordinary circumstances in both
the U.S. financial services industry and the global financial services
industry. Many entities in the financial services industry have faced
severe economic hardship. During this period of upheaval, the recent
trend of industry consolidation amongst significant banks, broker-
dealers and other providers of financial services has accelerated. For
example, BOA became the parent company of the Merrill Lynch Group, Inc.
(the Merrill Group) as of January 1, 2009; in September 2008, Barclays
Bank PLC (Barclays Bank), a subsidiary of Barclays PLC, acquired most
of the U.S. broker-dealer business of Lehman Brothers Holdings Inc.;
and, in May 2008, Bear Stearns Companies Inc. was acquired by JPMorgan
Chase & Co.
5. In this context, BlackRock, in June 2009, made a binding offer
to Barclays pursuant to an Amended and Restated Stock Purchase
Agreement by and among BlackRock, Barclays Bank and (for limited
purposes) Barclays, which ultimately resulted in the Acquisition.
BlackRock completed the Acquisition on December 1, 2009, in exchange
for an aggregate of 37,566,771 shares of BlackRock common stock and
participating preferred stock (which ownership is discussed in more
detail below) and approximately $6.6 billion in cash. Barclays'
decision to enter into the Acquisition was based upon a variety of
factors that Barclays stated would be beneficial to its shareholders,
including the creation of material economic exposure to a highly
competitive global asset manager.
6. Prior to the Acquisition, PNC, indirectly through its subsidiary
PNC Bancorp, Inc. (PNC Bancorp), held an approximately 31.9% economic
interest and an approximately 43.2% voting interest in BlackRock. BOA,
through its (indirect) wholly-owned subsidiary the Merrill Group, held
an approximately 48.3% economic interest and approximately 4.6% voting
interest in BlackRock. Immediately following the Acquisition, the MPS
ownership was as follows:
(a) Bank of America/Merrill Group. The Merrill Group owned
approximately 3.7% of BlackRock voting common stock and approximately
34.2% of BlackRock equity by value, consisting of Series B Non-Voting
Preferred Stock \5\ in addition to the voting common stock held. The
Merrill Group also owned (and owns) the equity of the Merrill brokerage
firms (including Merrill Lynch, Pierce, Fenner & Smith Incorporated)
and other financial service providers, which firms are owned down
different chains of ownership from the Merrill Group's stake in
BlackRock. The Merrill Group is 100% owned by Merrill Lynch & Co. Inc.
(the former publicly traded holding company), which in turn is 100%
owned by BOA, the publicly traded overall Bank of America holding
company. BOA owns Bank of America, N.A. down a different ownership
chain from the Merrill Group-BlackRock ownership chain.
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\5\ Series B Non-Voting Preferred Stock provides for the same
economic rights as BlackRock common stock, but it is non-voting. The
Series B Non-Voting Preferred Stock is automatically converted to
common stock when transferred to a third party.
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(b) PNC Ownership Interest. PNC Bancorp owned approximately 35.2%
of BlackRock voting common stock and approximately 24.5% of BlackRock
equity by value, consisting of Series B, C and D \6\ Non-Voting
Preferred Stock. PNC Bancorp owned (and owns) PNC Bank, N.A. down a
different chain of ownership. PNC Bancorp is wholly-owned by PNC, the
publicly traded overall PNC holding company.
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\6\ Series C Non-Voting Preferred Stock provides for the same
terms as Series B Non-Voting Preferred Stock, except that it (a) has
a liquidation preference of $40 per share as opposed to $.01 for
Series B Non-Voting Preferred Stock, (b) is only convertible to
common stock upon the termination of a Share Surrender Agreement
between BlackRock, and (c) can only be transferred to BlackRock
pursuant to such Share Surrender Agreement. Series D Non-Voting
Preferred Stock provides for the same terms as Series B Non-Voting
Preferred Stock and was automatically converted to Series B Non-
Voting Preferred Stock on January 31, 2010.
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(c) Barclays Ownership Interest. Barclays BlackRock Holdings,
S.a.r.l. (Barclays Luxembourg), a wholly-owned Luxembourg subsidiary of
Barclays Bank, owned approximately 4.8% of BlackRock voting common
stock and approximately 19.8% of BlackRock equity by value, consisting
of Series B Non-Voting Preferred Stock and Series D Non-Voting
Preferred Stock in addition to the voting common stock. Barclays Bank
is a 100% owned subsidiary of Barclays PLC, the publicly traded
Barclays holding company.\7\
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\7\ On November 17, 2010, Barclays Luxembourg transferred
approximately ninety nine percent (99%) of its BlackRock voting
common stock and approximately ninety nine (99%) of its Series B
Non-Voting Preferred Stock to Lapis (Gers Investments) LP, a newly-
formed Delaware limited partnership and an indirect subsidiary of
Barclays Bank PLC.
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7. Post-Acquisition, a secondary offering of BlackRock common stock
was completed on November 15, 2010, by the Merrill Group and PNC
Bancorp (the Secondary Offering). BlackRock's ownership structure
following the Secondary Offering was as follows: (a) The Merrill Group
owned 0% of BlackRock's voting common stock and approximately 7.1% of
BlackRock's equity by value, consisting of Series B Non-Voting
Preferred Stock; (b) PNC Bancorp owned approximately 25.3% of
BlackRock's voting common stock and approximately 20.3% of BlackRock's
equity by value, consisting of Series B and C Non-Voting Preferred
Stock in addition to the voting common stock held; and (c) Barclays
Bank owned approximately 2.3% of BlackRock's voting common stock and
approximately 19.7% of BlackRock's equity by value, consisting of
Series B Non-Voting Preferred Stock in addition to the voting common
stock held.
8. Immediately following the Acquisition, the approximately 56.3%
of BlackRock's voting common stock not owned by the MPSs (representing
an approximately 21.5% economic interest in BlackRock) was beneficially
owned by the employees of BlackRock and retail and institutional
investors unrelated to BlackRock or an MPS. Immediately following the
Secondary Offering, the approximately 72.4% of BlackRock's voting
common stock not owned by the MPSs (representing an approximately 52.9%
economic interest in BlackRock) was beneficially owned
[[Page 15060]]
by the employees of BlackRock and retail and institutional investors
unrelated to BlackRock or an MPS.
All BlackRock stock beneficially owned by each MPS (other than
stock held in certain fiduciary capacities and customer or market
making accounts) is subject to a stockholders agreement entered into by
and between that MPS and BlackRock (collectively, the Stockholders
Agreements). Pursuant to each Stockholders Agreement, each MPS has or
had the right to identify to BlackRock two (2) prospective directors,
and, if such nominees are reasonably acceptable to the BlackRock Board
of Directors (the Board), BlackRock and each respective MPS agrees to
use best efforts to cause the election of such nominees to the Board.
The Stockholder Agreements also contemplate a reduction in the number
of Board seats which an MPS is entitled to designate to one upon the
MPS' interest falling below a ten percent (10%) equity interest for
ninety (90) consecutive days, and to zero upon the MPS' interest
falling below a five percent (5%) equity interest for ninety (90)
consecutive days. The Board may waive this provision. As a result of
the Secondary Offering, the Merrill Group fell below a ten percent
(10%) equity interest, and, assuming that it remains below this level,
the Merrill Group lost the right to identify to BlackRock one
representative director on or about February 13, 2011 (the Merrill
Director Reduction). It is anticipated that the Board will not waive
the Merrill Director Reduction.
At least 10 of the current 19 directors must be ``independent''
(within the meaning of New York Stock Exchange (NYSE) rules \8\) of the
MPSs and BlackRock management and each MPS must vote its BlackRock
voting common stock in accordance with the recommendations of the
Board. In addition, the Audit Committee, the Management Development and
Compensation Committee, and the Nominating and Governance Committee of
the Board consist entirely of independent directors, and a majority of
each other Board committee (if any), with the exception of the
Executive Committee,\9\ must consist of independent directors. With
limited exceptions, all decisions of any committee of the Board require
the presence of a majority of the directors at a meeting at which a
quorum is present. As of the date hereof, none of the directors
representing an MPS serve on any Board committee, except that one
director representing PNC serves on the Executive Committee. Further,
no MPS representative directors sit on any of the Board of Directors of
BlackRock Managers. While each MPS monitors its investment in BlackRock
through its Board representatives and each MPS has certain limited
governance rights,\10\ no MPS has or will have any involvement in the
day-to-day management of BlackRock, any BlackRock Manager or any other
BlackRock Entity.
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\8\ Section 303A.01 of the NYSE Listed Company Manual requires
listed companies to have a majority of independent directors.
Although an exception is made for companies controlled by a group of
shareholders, the Stockholders Agreements among BlackRock and the
MPSs preclude the MPSs from becoming part of any such group.
BlackRock represents that the Board must include a minimum of
fourteen (14) directors total, which minimum would be applicable
only if one or more of the MPSs has its equity stake drop to the
point where it loses the ability to identify representative
BlackRock directors, due to the interplay of the Shareholders
Agreements and NYSE rules.
\9\ While the Executive Committee may exercise the powers of the
Board during intervals between Board meetings or at times when the
Board is unable to convene, the Executive Committee has not met for
over five (5) years.
\10\ Pursuant to the BOA Stockholder Agreement, the following
significant actions would require BOA's consent: (a) Certain
amendments to the certificate of incorporation or bylaws; (b)
entering into certain regulatory settlements with specified adverse
consequences to BOA; (c) amending or modifying the PNC Stockholder
Agreement in a manner that would be viewed as materially adverse to
BOA or materially more advantageous to PNC, and (d) any voluntary
bankruptcy filing by BlackRock. Pursuant to the PNC Stockholder
Agreement, the following significant actions would require approval
by two-thirds of all directors or all of the independent directors:
(a) Appointment of a new Chief Executive Officer; (b) certain major
acquisitions, divestures or share issuances; (c) amendments to the
certificate of incorporation or bylaws applicable to BlackRock; and
(d) any amendment, modification or waiver of any obligation of
another significant stockholder pursuant to a stockholder agreement
with such significant stockholder. Further, the PNC Stockholder
Agreement provides that the following actions would require the
consent of PNC: (a) Certain major acquisition or divestitures; and
(b) the same matters for which BOA has a consent right as described
previously. Pursuant to the Barclays Stockholder Agreement, the
following significant actions would require the consent of Barclays:
(a) Amending the certificate of incorporation or bylaws in a manner
that would in any material respect adversely change the powers or
preferences of any capital stock; (b) entering into certain
regulatory settlements with specified adverse consequences to
Barclays and (c) any voluntary bankruptcy of BlackRock.
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In addition, the respective Stockholder Agreements provide for the
following additional restrictions on the ability of an MPS to control
BlackRock or any BlackRock Manager:
(a) Standstill Agreements. The Stockholder Agreements cap the MPSs'
ownership interest in BlackRock's capital stock at certain prescribed
levels of voting power on an issued and outstanding basis, and economic
interest on a fully diluted basis, and they generally restrict each MPS
from purchasing additional stock if doing so would cause its respective
interests in BlackRock to exceed the applicable ownership cap.\11\
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\11\ The following are the caps on voting interests: BOA = 4.9%;
PNC = 49.9%; and Barclays = 4.9%. The following are the caps on
economic interest: BOA = 9.9%; PNC = 38%; and Barclays = 19.9%.
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(b) Transfer Restrictions. The Stockholder Agreements include
limitations on the transfer of an MPS' BlackRock capital stock, and
provide for a right of first refusal in BlackRock's favor should the
MPS desire to sell its BlackRock capital stock privately.
(c) Arm's Length Business Relationships. The MPSs and BlackRock
conduct business on a competitive basis, including executions and other
services for the clients of each. Under the Stockholder Agreements, any
new material transaction between BlackRock or its affiliates and an MPS
or its affiliates not in the ordinary course of business on behalf of
clients or not pursuant to a policy, transaction or agreement (or form
of agreement) previously approved must generally be approved by a
majority of the BlackRock directors (other than the directors
designated by the applicable MPS).
Requested Relief
9. Given the unique nature of the BlackRock ownership structure
following the Acquisition, the Applicants believe that no MPS should be
regarded for ERISA purposes as an ``affiliate'' of BlackRock or any
BlackRock Manager because the Applicants believe that no MPS, alone or
with another MPS, will be in a position to ``control'' BlackRock. In
addition to the BlackRock ownership structure itself preventing MPS
control of BlackRock, the Stockholder Agreements provide several
important safeguards to mitigate the possibility of an MPS exerting any
form of control that might otherwise raise concerns under ERISA. In
particular, the standstill agreements, transfer restrictions and arm's
length business relationship provisions are designed to ensure that
BlackRock maintains its independence. Even if the MPSs wished to act
together to control BlackRock, BlackRock believes that the MPSs would
not be able control BlackRock because the Stockholder Agreements
mandate that each MPS vote its BlackRock shares in accordance with the
recommendations of the Board, which is dominated by persons other than
MPS nominees. Lastly, the MPSs are competitors in the financial
services industry, and as such, concerted action among the MPSs is
extremely unlikely.
10. Nevertheless, the Applicants represent that when a BlackRock
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Manager is a fiduciary with investment discretion with respect to a
Client Plan,\12\ and the BlackRock Manager is deciding whether to enter
into a Covered Transaction \13\ with or involving an MPS, the ownership
interest of the MPS in BlackRock could affect the BlackRock Manager's
best judgment as a fiduciary, raising issues under ERISA section
406(b). The Applicants note that the Department's regulation at 29 CFR
2550.408b-2(e)(1) provides that ``[a] person in which a fiduciary has
an interest which may affect the exercise of such fiduciary's best
judgment as a fiduciary includes, for example, a person who is a party
in interest by reason of a relationship to such fiduciary described in
section 3(14)(E), (F), (G), (H), or (I)'' of ERISA. ERISA section
3(14)(H) provides that a 10% or more shareholder of a service provider
(which may include a plan fiduciary) is a party in interest to the plan
in question by reason of that relationship to the service provider.
Accordingly, the Applicants seek relief from the prohibitions of ERISA
section 406(b) to cover the Covered Transactions described hereinafter.
Further, if BlackRock Entities and one or more MPS are deemed
affiliates, and because each MPS and its affiliates are very likely
parties in interest within the meaning of ERISA section 3(14) with
respect to many Client Plans, the Applicants also seek relief from the
prohibitions of ERISA section 406(a) with respect to such Covered
Transactions. Specifically, many prohibited transaction class
exemptions from ERISA section 406(a) require as a condition for relief
that the plan fiduciary and the party in interest not be
``affiliates.'' Although the Applicants believe that no MPS should be
regarded for ERISA purposes as an ``affiliate'' of BlackRock, the
Applicants desire the certainty of relief which the proposed exemption
would provide if Covered Transactions are entered into in conformance
therewith. The Applicants, however, are seeking relief with respect to
BOA only until the day after the effective date of the Merrill Director
Reduction.
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\12\ ``Client Plan'' means any plan subject to ERISA section
406, Code section 4975 or FERSA section 8477(c) for which a
BlackRock Manager is a fiduciary as described in ERISA section
3(21), including, but not limited to, any Pooled Fund, MPS Plan,
Index Account or Fund, Model-Driven Account or Fund, Other Account
or Fund, or In-House Plan, as defined in Section VI of the proposed
exemption, except where specified to the contrary.
\13\ ``Covered Transaction'' means each transaction set forth in
Section III of the proposed exemption by a BlackRock Manager for a
Client Plan with or involving, directly or indirectly, an MPS and/or
a BlackRock Entity.
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11. As discussed above, there have recently occurred extraordinary
circumstances in both the U.S. and the global financial services
industry. Many entities in the financial services industry have faced
severe economic hardship. During this period of upheaval, the trend of
industry consolidation amongst significant banks, broker-dealers and
other providers of financial services has accelerated. Thus, it is the
Applicants' belief that each MPS' involvement in financial services has
expanded at the same time as the number of participants in the capital
markets has declined. As a result, the Applicants believe that the
failure to obtain exemptive relief proposed herein would deny Client
Plans access to a significant portion of the financial markets and that
such denial would unduly harm Client Plans and their participants and
beneficiaries.
12. The Applicants request that the proposed exemption provide
relief for certain enumerated types of Covered Transactions entered
into after the Acquisition and, in certain cases, before the
Acquisition and that have continued after the Acquisition.
Structure of Relief
13. The structure of the Applicants' requested relief is founded
upon compliance with five sets of general conditions. The five sets of
general conditions are: (a) Modified conditions derived from PTE 84-14,
as amended (sometimes referred to as the QPAM Exemption);\14\ (b)
restrictions on the compensation of BlackRock Managers and their
employees; (c) the establishment and implementation of certain policies
and procedures (the Exemption Polices and Procedures or EPPs); (d) the
appointment by BlackRock of an Exemption Compliance Officer (ECO); and
(5) the retention by BlackRock of an Independent Monitor (IM). The
purpose of these general conditions is, when coupled with the
restrictions of the Stockholders Agreements and the BlackRock ownership
structure, to foster independence of action by the BlackRock Managers
notwithstanding the equity interests in BlackRock held by the MPSs.
This unique overarching structure includes a comprehensive compliance
function and an independent monitor, each of which work together for
the benefit of Client Plans and their participants and beneficiaries by
allowing Covered Transactions with or involving an MPS only if the
Covered Transaction is, as best as can be determined, as favorable to
the Client Plans as arm's length transactions with third parties.
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\14\ 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 49305 (Aug.
23, 2005), and as amended, 75 FR 38837 (July 6, 2010).
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14. In addition to the general conditions, each Covered Transaction
has its own set of additional conditions deemed suitable for it in
light of the nature of the transaction. Many of the conditions for
individual Covered Transactions are derived from statutory exemptions,
administrative class exemptions or administrative individual exemptions
frequently relied upon by fiduciaries and parties in interest
(sometimes affiliated and sometimes not) to exempt similar
transactions. The general and transaction-specific conditions for
relief attempt to strike a balance that takes into account both the
MPSs' unique equity interests in BlackRock and the ability of BlackRock
Managers acting on behalf of Client Plans to engage in arm's length
Covered Transactions with or involving institutions as significant in
their markets as are the MPSs.
15. With respect to the relief for all Covered Transactions
described herein, Section II of the proposed exemption provides that
the following general safeguards must be met:
Section II.A--Compliance with the QPAM Exemption. With certain
exceptions, the conditions for relief under Part I of PTE 84-14 must be
satisfied with respect to each Covered Transaction.\15\ Compliance with
the QPAM Exemption conditions, as modified, is intended to assure that
BlackRock Managers will be independent of the MPSs with which they
enter into transactions. These conditions impose, among other
requirements, the requirement that there be no agreement, arrangement
or understanding designed to benefit an MPS, and the requirement that
the terms of the Covered Transaction be at least as favorable to the
Client Plans as the terms generally available in arm's length
transactions between unrelated parties. Each BlackRock Manager
utilizing the requested relief must meet the definition of a
``qualified professional asset manager'' as described in Section VI(a)
of the QPAM Exemption, and each Covered Transaction must satisfy the
[[Page 15062]]
conditions described in the following paragraphs.
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\15\ The QPAM Exemption may not be relied upon for securities
lending. See Section I(b)(1) of the QPAM Exemption. However, for
purposes of this proposed exemption, securities lending constituting
Covered Transactions involving an MPS must comply with the QPAM
Exemption conditions set forth in Section II.A. of the proposed
exemption as well as the specific conditions (modeled on PTE 2006-
16, 71 FR 63786 (October 31, 2006)) set forth in Section III.M. of
the proposed exemption.
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With certain exceptions discussed in the descriptions of the
Covered Transactions, Section II.A.2. of the proposed exemption
provides that, at the time of a Covered Transaction with or involving
an MPS, the MPS, or its affiliate (within the meaning of section VI(c)
of the QPAM Exemption),\16\ must not have the authority to appoint or
terminate the BlackRock Manager as a manager of the Client Plan assets
involved in the Covered Transaction, or negotiate on behalf of the
Client Plan the terms of the management agreement with the BlackRock
Manager (including renewals or modifications thereof) with respect to
the Client Plan assets involved in the Covered Transaction. Under
Section II.A.3(a), notwithstanding the foregoing, in the case of an
investment fund in which two or more unrelated Client Plans have an
interest, a Covered Transaction with an MPS will be deemed to satisfy
the requirements of the foregoing condition if the assets of a Client
Plan on behalf of which the MPS or its affiliate possesses the
authority described above and which is managed by the BlackRock Manager
in the investment fund, when combined with the assets of other Client
Plans established or maintained by the same employer (or an affiliate
thereof) or by the same employee organization, on behalf of which the
same MPS possesses such authority and which are managed in the same
investment fund, represent less than ten percent (10%) of the assets of
the investment fund (this rule is referred to herein as the 10% Rule).
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\16\ For the avoidance of doubt, no BlackRock Entity will be
regarded as an affiliate of an MPS for these purposes.
---------------------------------------------------------------------------
In this regard, the Applicants represent that, in certain cases, as
of the date of the Acquisition, assets of MPS Plans, whether or not
combined with the assets of other plans of the same employer,
represented ten percent (10%) or more of a BTC bank collective trust
fund. These investments in the BTC bank collective trust fund, at the
time they were made or authorized, were selected by fiduciaries of MPS
Plans (or participants therein) as being in the interests of the MPS
Plans and their participants and beneficiaries when no relationship
existed between BlackRock and the MPSs in question that might be viewed
as affecting the best judgment of the fiduciaries of the MPS Plans.
While the appropriate fiduciary of these Client Plans, rather than the
MPS itself, appointed the BlackRock Manager by investing or permitting
investment in the bank collective trust fund, the Applicants
nevertheless desire certainty that Section II.A.2. of this proposed
exemption will be deemed to be met during the an unwind period that
shall last until July 1, 2010 (the Unwind Period). There were practical
obstacles to otherwise achieving compliance with the ten percent (10%)
limitation in a shorter time frame, such as the need of the MPS Plans
for sufficient time to adequately explore replacement investment
managers. During the Unwind Period, such MPS Plans would be deemed for
purposes of the proposed exemption to satisfy the 10% Rule if certain
conditions are met; such conditions focus on fees paid by MPS Plans to
BlackRock Managers during the Unwind Period, the termination provisions
of the MPS Plans' investments in the Pooled Fund, and the IM's
oversight of the terms of the investments in the Pooled Fund.\17\
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\17\ For purposes of Section I.A.3.(b) of the proposed exemption
and for the 10% Rule set forth in Sections III.I., III.L., III.M.
and III.U. of the proposed exemption, the MPS Plans of each of the
MPS Groups (the PNC MPSs, the BOA MPSs, and the Barclays MPSs) are
separately aggregated (e.g., all MPS Plans of BOA MPSs are
aggregated together but are not aggregated with MPS Plans of
Barclays MPSs or PNC MPSs).
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The remaining conditions of Section II.A. of the proposed exemption
generally track conditions set forth in Sections I(c)-I(g) of the QPAM
Exemption, with an exception for the condition set forth in Section
I(d) of the QPAM Exemption because MPSs are deemed not ``related to''
BlackRock for purposes of the proposed exemption.\18\
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\18\ For the avoidance of doubt, MPSs are excluded from the
terms ``affiliate'' and ``owner'' for purposes of Section II.A. of
the proposed exemption.
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Section II.B.--Compensation Restrictions. The Applicants recognize
that an unrestricted ability for employees of BlackRock to receive
compensation in connection with the Covered Transactions could give
rise to potential ERISA conflicts. In order to address this potential
for conflicts, the Applicants will agree that no employees of a
BlackRock Manager can receive any compensation that is based on any
Covered Transaction having taken place between Client Plans and any of
the MPSs (as opposed to with another institution that is not an MPS).
The fact that a specific Covered Transaction occurred with an MPS as
opposed to a non-MPS counterparty must be ignored by BlackRock and
BlackRock Managers for compensation purposes. None of the employees of
BlackRock or a BlackRock Manager can receive any compensation from
BlackRock or a BlackRock Manager which consists of equity Securities
issued by an MPS, which fluctuates in value based on changes in the
value of equity Securities issued by an MPS, or which is otherwise
based on the financial performance of an MPS independent of BlackRock's
performance, provided that this condition shall not fail to be met
because of the compensation of an employee of a BlackRock Manager
fluctuates with the value of a broadly-based index which includes
equity Securities issued by an MPS.
Section II.C.--Exemption Policies and Procedures. The Applicants
recognize that in order for BlackRock to successfully manage and
monitor Covered Transactions, the establishment of systematic policies
and procedures is essential. The proposed exemption requires that
BlackRock adopt and implement Exemption Policies and Procedures (EPPs),
as defined in the proposed exemption, that address each of the Covered
Transactions and that are reasonably designed to achieve the goals of:
(a) Compliance with the terms of the exemption, (b) ensuring
BlackRock's decisionmaking with respect to the Covered Transactions on
behalf of Client Plans is done in the interests of the Client Plans and
their participants and beneficiaries and, (c) to the extent possible,
verifying that the terms of such Covered Transactions are at least as
favorable to Client Plans as the terms generally available in arm's
length transactions with unrelated parties. The EPPs are to be
developed with the cooperation of both the ECO and the IM, and such
EPPs are subject to the approval of the IM. The EPPs need not address
transactions which are not within the definition of the term Covered
Transactions.
Transgressions of the EPPs fall into three categories: (a)
transgressions that constitute prohibited transactions under ERISA
sections 406, Code section 4975, or FERSA section 8477(c) and which are
not exempt by reason of a failure to comply with the proposed exemption
or another administrative or statutory exemption (referred to herein as
Violations), (b) transgressions that involve material amounts or
material deviations from the EPPs, taking into account the amount of
Client Plan assets affected by such transgressions (EPP Corrections),
but that do not constitute Violations, and (c) transgressions that
involve immaterial amounts and deviations from the EPPs and do not
constitute Violations. The ECO will make a written determination as to
whether such transgressions constitute Violations and require
corrective action pursuant to Section V of the proposed exemption,
require EPP Correction, or
[[Page 15063]]
require no action. If the ECO determines a Violation has occurred, the
provisions of Section V of the proposed exemption are applicable. If
the ECO determines an EPP Correction is required, the ECO will provide
written notice to the IM of the EPP Correction and the IM would have
the authority to mandate further corrective action. The ECO will
provide summaries for the IM of any such EPP Corrections as part of the
required quarterly report.
To illustrate the implementation of the rules with respect to the
three categories outlined above, the Applicants have provided the
following hypothetical examples.
(a) Hypothetical Example One: A portfolio manager (PM) at a
BlackRock Manager purchases Barclays common stock on the secondary
market on behalf of several Client Plan portfolios, which if such
purchases were below fifteen percent (15%) of the aggregate average
daily trading volume (ADTV) for the previous ten trading days or below
fifteen percent (15%) of the trading volume on the day of the purchase
would otherwise appear to satisfy the criteria for relief under Section
III.S. of the proposed exemption. The PM fails to aggregate the
purchases of all of the accounts, and it purchases 15.2% of the ten
trading day ADTV (which is also higher than the day in question's
volume), thereby exceeding fifteen percent (15%) of both the ten day
ADTV and the trading volume on the day of the transactions. As a
result, they are no longer eligible for purchase under Section III.S.
of the proposed exemption. Unless timely corrected under Section V of
the proposed exemption, the purchase would constitute a Violation.
(b) Hypothetical Example Two: A PM at a BlackRock Manager purchases
Barclays common stock on the secondary market on behalf of several
Client Plan portfolios. The PM purchases an amount of Barclay stock
equal to thirteen percent (13%) of the ten trading day ADTV. In order
to simplify a compliance monitoring process that oversees three
separate trading desks, the EPPs provide that purchases with respect to
certain groups of portfolios be limited to purchases of MPS stock that
equal no more than five percent (5%) of the ten day ADTV, unless
approved in advance by the ECO. The purchases are made and no Violation
has occurred because BlackRock is well below fifteen percent (15%) of
the ten trading day ADTV, but there has been a serious transgression of
the EPPs in that the PM failed to adhere to the carefully designed
EPPs. Assuming for these purposes no mitigating further circumstances,
the ECO Function would make a determination of an appropriate EPP
Correction, including whether the implicated Client Plans would be
better served by keeping or selling the securities acquired. The ECO
would provide written notice to the IM of the EPP Correction. The IM
would have the authority to mandate further corrective action.
(c) Hypothetical Example Three: The circumstances of the Barclays
stock purchase are essentially the same as those in Hypothetical
Example Two, except the PM at the BlackRock Manager in question, when
he checks his trade list and aggregates the total percentage of
Barclays stock to be purchased, issues instructions to cancel enough of
the proposed purchase to bring it below five percent (5%). However,
through inadvertence of the broker, the cancellation is not implemented
and the full thirteen percent (13%) purchase is made of Barclays stock.
There is no Violation, the original purchase order was a transgression
of the EPPs, and correction may or may not be necessary depending on
the circumstances, including why it was that the original purchase
order was given and why it was the cancellation was not effected.
Section II.D.--Exemption Compliance Officer. In order to comply
with the proposed exemption, the Applicants represent that it is
essential to appoint an ECO and an ECO Function.\19\ The ECO and the
ECO Function will be developed and maintained by BlackRock to monitor
compliance with the Code, ERISA, FERSA and the proposed exemption. The
use of a dedicated ECO is more advantageous than simple reliance upon
the Applicants' existing compliance department because the ECO will
have a single focus on ERISA compliance as well as the expertise to
ensure such compliance. In addition, the ECO and the ECO Function
provide a centralized resource that is well suited to providing and
receiving information to and from the IM (as discussed below).
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\19\ ``ECO Function'' means the ECO and such other BlackRock
Entity employees in legal and compliance roles working under the
supervision of the ECO in connection with the Covered Transactions.
The list of BlackRock Entity employees shall be shared with the IM
from time to time, not less than quarterly, and such employees will
be made available to discuss the relevant Covered Transactions with
the IM to the extent the IM or the ECO deem it reasonably prudent.
---------------------------------------------------------------------------
The proposed exemption requires that BlackRock appoint an ECO. If
the ECO resigns or is removed, BlackRock shall appoint a successor ECO
within a reasonable period of time, not to exceed thirty (30) days,
which successor shall be subject to the affirmative written approval of
the IM. The ECO is a professional with at least ten years of experience
and extensive knowledge of the regulation of financial services and
products, including such regulation under ERISA and FERSA.
The conditions of Section II.D. of the proposed exemption govern
the ECO's employment with BlackRock, including compensation,
termination, treatment and responsibilities. The responsibilities set
forth in Section II.D. of the proposed exemption generally include, but
are not limited to: Monitoring Covered Transactions (including
transactions and situations resulting from transactions with MPSs),
monitoring compliance with the EPPs, determining whether corrective
action, if any, is necessary with respect to Violations and EPP
Corrections, determining whether revisions are necessary to the EPPs,
the supervision of the ECO Function, the provision of a quarterly
report to the IM, and the provision of certain certifications to the
IM.
Section II.E.--Independent Monitor. The applicant represents that
the ECO and the ECO Function alone may not be sufficient to completely
avoid potential conflicts of interests. Conversely, the Applicants also
believe that a wholly independent third party alone would not be able
to efficiently or effectively monitor and oversee all of the relevant
BlackRock activities. Therefore, BlackRock will appoint an IM that will
provide an independent perspective, be capable of making independent
decisions when necessary, and, to the extent any Violations occur or
corrections are necessary, pass upon the same without any risk of self-
interested motives that could be perceived if the ECO alone were to be
responsible for making such decisions. The IM serves some of the same
functions that a Qualified Professional Asset Manager might under
similar circumstances but, as discussed above, due to the unique nature
and complexities of the requirements contained in the proposed
exemption, reliance upon the IM alone, without the support of the ECO
and the ECO Function (and the EPPs) would be inadequate. The Applicants
believe that the ECO, the ECO Function and the IM together will
complement each other in serving their respective roles and combine,
through frequent communication and coordination, to provide the
necessary compliance regime.
The proposed exemption, therefore, requires that BlackRock retain
an IM. If the IM resigns or is removed, BlackRock
[[Page 15064]]
shall appoint a successor IM within a reasonable period of time, not to
exceed thirty (30) days. The IM agrees in writing to serve as IM, and
he or she is independent within the meaning of the proposed exemption.
The conditions of Section II.E. of the proposed exemption set forth
the IM's responsibilities. The IM's responsibilities generally include,
but are not limited to, the following: approval of the ECO and his or
her compensation, assistance in the development, alteration and
monitoring of the EPPs, consulting with the ECO regarding EPP
Corrections and Violations (including modifications regarding such),
exercising discretion for Client Plans when BlackRock Managers may have
conflicts, reviewing the ECO's quarterly reports and certifications,
determining whether a pattern or practice of BlackRock non-compliance
exists, and the completion of an annual report.
Section II.F.--Special Notice Provisions. As an added safeguard to
affected Client Plans, the proposed exemption requires specific
disclosure to a plan fiduciary independent of BlackRock with respect to
certain Covered Transactions. Such additional disclosure makes the
provision of exemptive relief for certain Covered Transactions
consistent with existing exemptive relief regimes. In that vein, a
Special Notice containing (a) a notice of all of the conditions for
relief under Sections III.C., E., F., G., Q., R., S. and V. of the
proposed exemption and (b) a copy of the Notice to Interested Persons,
must be provided to affected Client Plans in writing (which may be
provided by U.S. mail or electronically, including by e-mail or use of
a centralized electronic mailbox, so long as such electronic
communication is reasonably calculated to result in the applicable
Client Plan's receipt) as soon as practical, but no later than fifteen
(15) days, following the date that the Notice to Interested Persons is
provided to Client Plans generally, through publication in the Federal
Register. As soon as practical following the Special Notice, a Client
Plan fiduciary independent of any BlackRock Entity must be provided any
additional material information regarding Covered Transactions
described in Sections III.C., E., F., G., Q., R., S. and V. of the
proposed exemption by the applicable BlackRock Manager on reasonable
request; provided, that, solely for purposes of this provision, the
fiduciary of an In-House Plan is not required to be independent of any
BlackRock Entity.
Covered Transactions
16. As discussed above, the structure of the requested relief is
founded upon compliance with five sets of general conditions. These
five sets of general conditions are then modified by additional
conditions deemed suitable for each Covered Transaction. Many of the
conditions for individual Covered Transactions are derived from
statutory exemptions, administrative class exemptions or administrative
individual exemptions frequently relied upon by fiduciaries and parties
in interest (sometimes affiliated and sometimes not) to exempt similar
transactions. Section III of the proposed exemption sets forth the
Covered Transactions for which the Applicants are seeking exemptive
relief and the conditions which must be satisfied in respect of such
Covered Transactions in order to be accorded such relief. Each Covered
Transaction is set forth below, corresponding to the subsections of
Section III of the proposed exemption.
A. Continuing Covered Transactions
17. The Applicants represent that as of the closing date of the
Acquisition, there were three types of continuing Covered Transactions
still in place which were previously entered into between BlackRock
Managers and one or more of the MPSs in reliance on PTE 84-14 (the QPAM
Exemption) and/or PTE 91-38 \20\ (a class exemption for transactions
entered into on behalf of bank collective trust funds), with such
transactions relying upon the continuing transaction provisions therein
(i.e., Section VI(i) of the QPAM Exemption and Section IV(h) of PTE 91-
38). The three types of continuing transactions (Continuing Covered
Transactions) are defined in the proposed exemption as Type A, Type B
and Type C.
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\20\ 56 FR 31966 (July 12, 1991), as corrected at 56 FR 59299
(Nov. 25, 1991).
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18. The three types of Continuing Covered transactions can be
described as follows:
(a) Type A: Continuing Covered transactions where there is no
discretion on the part of either party, other than the ability of the
BlackRock Manager to sell or otherwise transfer the Client Plan's
position to a third party, the ability of the MPS to sell or otherwise
transfer its position to a third party, or the ability of an MPS to
otherwise terminate the transaction on previously specified terms. This
could include, for example, the holding by a Client Plan of a corporate
debt instrument issued by an MPS, which the BlackRock Manager may sell
on behalf of a Client Plan or which the MPS may redeem. Another example
is a commercial mortgage loan made to a Client Plan by an MPS that does
not include a prepayment provision, which loan the MPS might sell to a
third party.
(b) Type B: Continuing Covered Transactions such as those described
as Type A, with the additional feature that the BlackRock Manager, on
behalf of a Client Plan, has the option to terminate the Transaction
with the MPS on previously specified terms. This could include a note
issued by an MPS which the BlackRock Manager, on behalf of a Client
Plan, has the ability to sell to a third party, or could choose to
``put'' back to the MPS on previously specified terms.
(c) Type C: Continuing Covered Transactions similar to Type B where
the BlackRock Manager may terminate or modify the Transaction on behalf
of a Client Plan under certain circumstances, but only with negotiation
and/or payment of consideration to the MPS or to the Client Plan which
was not predetermined. An example of such a Transaction could include a
swap between a Client Plan and an MPS with a fixed term, under which
the BlackRock Manager can seek novation to a third party if the MPS
consents (perhaps for a price, for example, to reflect any credit
differences between the selling Client Plan and the buyer), or which
the BlackRock manager can terminate at any time if there is agreement
on the termination payments.
The Applicants represent that each continuing Covered Transaction
was believed to be in the interests of Client Plans and their
participants and beneficiaries as of the date entered into.
19. With respect to Type A Covered Transactions in reliance on PTE
84-14 or PTE 91-38, the Applicants' position is that relief for any
prohibited transaction that might arise under ERISA section 406(a)
should continue to be available, if such relief applied pre-
Acquisition, whether or not needed, pursuant to Section VI(i) of PTE
84-14 and Section IV(h) of PTE 91-38, the ``continuing transactions''
provisions of the exemptions, until or unless a modification, renewal
or other discretionary action becomes necessary. The Department has
previously concurred with a similar analysis of the ``continuing
transaction'' provisions of PTE 84-14 and 91-38 in the Notice of
Proposed Exemption with respect to PTE 2009-11.\21\ However, the
Department additionally noted that no relief is provided from ERISA
section
[[Page 15065]]
406(b) for an act of self-dealing that arises if circumstances change
during the course of the continuing transaction.
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\21\ 73 FR 63200, 63204 (Oct. 23, 2008).
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20. With respect to Type B and Type C Continuing Covered
Transactions, and the unwind, settlement or other termination thereof,
ERISA section 406(a) and 406(b) relief is afforded under the proposed
exemption, subject to the conditions outlined below. In conjunction
therewith, the Applicants' position is that the provision of the
exemptive relief from ERISA sections 406(a) and (b) for Type B and Type
C continuing Covered Transactions does not necessarily mean that ERISA
section 406(a) relief was not available for at least some of these
Continuing Covered Transactions under PTE 84-14 or PTE 91-38. The
Applicants acknowledge, however, that the Department is expressing no
view as to whether such relief was otherwise available.
21. A list of all Type B Covered Transactions and all Type C
Covered Transactions (B and C List) as of the Acquisition must be
prepared and provided to the ECO and the IM. Any discretionary act by a
BlackRock Managers with respect to a transaction on the B and C List
must be approved in writing in advance by the ECO. Such approval is
required for, but not limited to, sales and other transfers to a third
party, redemptions, the exercise of options and the declaration of
default or other credit impairment driven decisions. The ECO must
determine that the terms of the action are in the interests of the
affected Client Plans. The ECO Function periodically monitors
outstanding transactions on the B and C List to inquire if an
affirmative discretionary act, such as a credit driven action would be
appropriate. If the ECO makes such a determination, the ECO must direct
the action be taken and must approve the terms thereof as being in the
interests of the affected Client Plans. The ECO Function must send to
the IM an updated copy of the B and C List as of the end of each fiscal
quarter summarizing the Type B Covered Transactions and the Type C
Covered Transactions remaining at the end of the quarter and any
discretionary actions taken during the quarter by BlackRock Managers
with respect to such transactions. Upon the determination by the IM
that an action taken with respect to a Type B Covered Transaction or a
Type C Covered Transaction was inappropriate or that the compensation
the Client Plans received was inadequate, or that an action should have
been taken but was not, the Client Plans will be made whole by
BlackRock.
B. Purchases and Holdings by BlackRock Managers of Fixed Income
Obligations Issued by an MPS in an Underwriting on Behalf of Client
Plans Invested in an Index Account or Fund, or in a Model-Driven
Account or Fund
22. The MPSs are significant issuers of Fixed Income Obligations
\22\ both in the United States and in the United Kingdom. The
Applicants represent that BlackRock Managers in their normal course may
determine that an investment for Client Plans in Fixed Income
Obligations newly issued by an MPS will be a beneficial investment for
Client Plans. In the case of Index Funds or Model-Driven Funds,
BlackRock Managers will need to make purchases of MPS Fixed Income
Obligations for Index Funds for purposes of tracking the relevant
Index, and for Model-Driven Funds for purposes of tracking the relevant
Model. The Applicants represent that the purchase of such MPS Fixed
Income Obligations for Index Funds or Model-Driven Funds in the primary
market may be the best way to acquire such Fixed Income Obligations.
The purchase of such Fixed Income Obligations, however, may convey an
economic benefit on the issuing MPS, and establishes a debtor-creditor
relationship. In addition, if an MPS is a member or manager of the
selling syndicate, the purchase might convey an economic benefit on
such MPS.
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\22\ For purposes of the proposed exemption, Fixed Income
Obligations is a defined term generally meaning fixed income
obligations characterized as debt pursuant to 29 CFR 2510.3-101
(other than loans with respect to which an MPS is the entity which
acts as lead lender and other than Asset-Backed Securities).
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23. The Applicants represent that: (a) Each BlackRock Manager makes
investment decisions on behalf of, or renders investment advice to, its
Client Plans in accordance with the governing document of the
particular Client Plan and the guidelines and objectives established in
the relevant trust agreement or investment management or advisory
agreement; (b) a decision to invest in a particular offering of Fixed
Income Obligations is made on the basis of price, value, and a Client
Plan's investment criteria; (c) a BlackRock Manager has little
incentive to make purchases from offerings in which an MPS is an issuer
that are not in the interests of a Client Plan because the BlackRock
Manager's compensation for its services is generally based upon assets
under management; and (d) if the assets under its management do not
perform well, the BlackRock Manager will over time receive less
compensation and could lose clients.\23\
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\23\ The Applicants' representations in this regard are equally
applicable to other Covered Transactions.
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24. In order for relief under the proposed exemption to be
available for this transaction, such purchase and holding must be for
the sole purpose of maintaining quantitative conformity with the weight
of such Securities prescribed by the relevant Index, for Index Accounts
or Funds, or the weight of such Securities prescribed by the relevant
Model, for Model-Driven Accounts or Funds, and such purchase may not
exceed the purchase amount necessary for such Model or quantitative
conformity. In addition, such purchase shall not be made from any MPS
and no BlackRock Entity shall be in the selling syndicate. Furthermore,
the responsible BlackRock Manager must notify the ECO if circumstances
arise in which an action or inaction on the part of the BlackRock
Manager regarding an MPS Fixed Income Obligation so acquired might be
thought to be motivated by an interest which may affect the exercise of
such BlackRock Manager's best judgment as a fiduciary (e.g.,
participation in a creditor's committee, exercise of a put, waiver of
covenants or other substantially similar actions), and the BlackRock
Manager must comply with decisions of the ECO regarding the taking, or
the refraining from taking, of actions in such circumstances. After the
purchase, any decision regarding the conversion of an MPS Fixed Income
Obligation into equity in the MPS must be made by the IM.
C. Purchase and Holding by BlackRock Managers of Fixed Income
Obligations Issued by an MPS in an Underwriting on Behalf of Client
Plans Invested in an Other Account or Fund
25. Because the MPSs are significant issuers of Fixed Income
Obligations in the United States and the United Kingdom, the Applicants
represent that BlackRock Managers in their normal course may determine
that an investment in a new offering of Fixed Income Obligations issued
by an MPS will be a beneficial investment for Client Plans in an
account or a pooled fund which is not an Index Fund or Model-Driven
Fund (an Other Account or Fund). As stated above, the purchase of such
Fixed Income Obligations, however, may convey an economic benefit on
the issuing MPS, and establishes a debtor-creditor relationship. In
addition, if an MPS is a member or manager of the selling
[[Page 15066]]
syndicate, the purchase might convey an economic benefit on such MPS.
26. In order for relief under the proposed exemption to be
available for this transaction, such purchase and holding must satisfy
the conditions of Section IV.A. (Affiliated Underwritings) of the
proposed exemption, except that for purposes of the ratings requirement
described therein, the MPS-issued Fixed Income Obligations at the time
of purchase must be rated in one of the three highest rating categories
by a Rating Organization and none of the Rating Organizations may rate
the Fixed Income Obligations lower than in the third highest rating
category. In addition, such purchase must not be made from an MPS and
no BlackRock Entity can be in the selling syndicate.
27. After purchase, the responsible BlackRock Manager must notify
the ECO if circumstances arise in which an action or inaction on the
part of the BlackRock Manager regarding an MPS Fixed Income Obligation
so acquired might be thought to be motivated by an interest which may
affect the exercise of such BlackRock Manager's best judgment as a
fiduciary, and the BlackRock Manager must comply with decisions of the
ECO regarding the taking, or the refraining from taking, of actions in
such circumstances. After purchase, any decision regarding conversion
of an MPS Fixed Income Obligation into equity in the MPS must be made
by the IM.
D. Certain Transactions in the Secondary Market by BlackRock Managers
of Fixed Income Obligations Including Fixed Income Obligations Issued
by or Traded With an MPS
28. Because the MPSs and their affiliates are significant issuers
of Fixed Income Obligations in the United States and the United
Kingdom, the Applicants represent that BlackRock Managers in their
normal course may determine that a secondary market investment for
Client Plans in Fixed Income Obligations issued by an MPS will be a
beneficial investment for Client Plans. The Applicants further
represent that BlackRock Managers in the normal course may determine
that the purchase from or sale to an MPS in the secondary market of
third party Fixed Income Obligations will be beneficial investments for
Client Plans. The MPSs are significant participants in the fixed income
markets as broker-dealers and offer significant sources of trading
liquidity to investment managers. Furthermore, multiple MPSs are often
ranked in the top five counterparties in the debt markets in the
aggregate as well as many asset classes and geographies. A leading 2008
survey (completed before Barclays/Lehman and BOA/Merrill Group
acquisitions) of investment managers ranking the quality of fixed
income broker-dealers ranked Bank of America, Barclays, Lehman
Brothers, and Merrill Lynch in the top 10 broker-dealers.\24\
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\24\ Greenwich Associates, Leading Dealers (2008).
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29. While purchases of Fixed Income Obligations in the secondary
market convey no economic benefit on the issuing MPS, a debtor-creditor
relationship is still established thereby. Also, such a purchase from
an MPS may be a prohibited transaction in and of itself, requiring
exemptive relief.
30. The Applicants state that obtaining the best available purchase
or sales price for a particular trade presents special challenges in
the fixed income markets, which trade a very large array of different
Fixed Income Obligations with specific features, including some Fixed
Income Obligations issued in relatively small numbers and/or in which
markets are made by only a small number of dealers. The diminution in
the number of market makers due to the recent exit of several major
participants from the financial services industry through bankruptcies
or acquisitions has heightened these challenges. Accordingly, the
Applicants represent that purchases and sales to or from an MPS will be
done in compliance with the Three Quote Process,\25\ which will
demonstrate that the MPS provides the best available purchase or sale
price for the Fixed Income Obligation being traded.
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\25\ As defined in the proposed exemption, ``Three Quote
Process'' means three bids or offers (either of which being
sometimes referred to as quotes) are received by a trader for a
BlackRock Manager each of which such quotes such trader reasonably
believes is an indication that the dealer presenting the bid or
offer is willing to transact the trade at the stipulated volume
under discussion, and all material terms (including volume) under
discussion are materially similar with respect to each other such
quote. In selecting the best of three such quotes, a BlackRock
Manager may maintain books and records for the three firm bids/
offers in a convention that it reasonably believes is customary for
the specific asset class (such as ``price'' quotes, ``yield'' quotes
or ``spread'' quotes). For example, corporate bonds are often quoted
on a spread basis and dealers customarily quote the spread above a
certain benchmark bond's yield (e.g., for a given size and direction
a BlackRock trader may ask for quotes to sell $1 million of a
particular bond, dealer 1 may quote 50 bps above the yield of the
ten (10) year treasury bond, dealer 2 might quote 52 bps above the
yield of the ten (10) year treasury bond and dealer 3 might quote 53
bps above the yield of the ten (10) year treasury bond). If only two
firm bids/offers can be obtained, the trade requires prior approval
by the ECO and the ECO must inquire as to why three firm bids/offers
could not be obtained. If in the case of a sale or purchase a trader
for a BlackRock Manager reasonably believes it would be injurious to
the Client Plan to specify the size of the intended trade to certain
bidders, a bid on a portion of the intended trade may be treated as
a firm bid if the trader documents (a) why the bid price is a
realistic indication of the economic terms for the actual amount
being traded despite the difference in the size of the actual trade
and (b) why it would be harmful to the Client Plan to solicit
multiple bids on the actual amount of the trade. If a trader for a
BlackRock Manager solicits bids from three or more dealers on a sale
or purchase of a certain volume of Securities, and receives back
three or more bids, but at least one bid is not for the full amount
of the intended sale, if the price offered by the partial bidder(s)
is less than the price offered by the full bidder(s), the trader may
assume a full bid by the partial bidder(s) would not be the best
bid, and the trader can consummate the trade, in the case of at
least two full bids, with the dealer making the better of the full
bids, or in the case of only one full bid, with the dealer making
that full bid.
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31. In order for relief under the proposed exemption to be
available for this transaction, the following additional conditions are
applicable solely to the extent that the Fixed Income Obligations are
issued by an MPS and are purchased and held by a BlackRock Manager for
a Client Plan: (a) The purchase of the Fixed Income Obligation issued
by an MPS is not made from the issuing MPS; (b) after purchase, the
responsible BlackRock Manager must notify the ECO if circumstances
arise in which an action or inaction on the part of the BlackRock
Manager regarding an MPS Fixed Income Obligation so acquired might be
thought to be motivated by an interest which may affect the exercise of
such BlackRock Manager's best judgment as a fiduciary, and must comply
with the decisions of the ECO regarding the taking, or the refraining
from taking, of actions in such circumstances; (c) after purchase, any
decision regarding conversion of an MPS Fixed Income Obligation into
equity in the MPS must be made by the IM; and (d) if purchased for an
Index Account or Fund, or a Model-Driven Account or Fund, such purchase
must be for the sole purpose of maintaining quantitative conformity
with the weight of such Securities prescribed by the relevant Index,
for Index Accounts or Funds, or the weight of such Securities
prescribed by the relevant Model, for Model-Driven Accounts or Funds,
and such purchase may not exceed the purchase amount necessary for such
Model or quantitative conformity.
32. With respect to Fixed Income Obligations, whether or not issued
by an MPS, held by a BlackRock Manager for a Client Plan under which an
MPS has an ongoing function, such as servicing of collateral for asset-
backed debt, or the potential for liability, such as under
representations or warranties made by an MPS with respect to collateral
for such asset-backed debt which the MPS originated, the taking of or
refraining
[[Page 15067]]
from taking of any action (e.g., instituting legal action for breach of
representation) by the responsible BlackRock Manager which could have a
material positive or negative effect upon the MPS must be decided upon
by the ECO. For purposes of this Covered Transaction, Asset-Backed
Securities,\26\ as defined in the proposed exemption, are not Fixed
Income Obligations.
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\26\ As defined in the proposed exemption, Asset-Backed
Securities means Securities which are pass-through certificates or
trust certificates characterized as equity pursuant to 29 CFR
2510.3-101 that represent a beneficial ownership interest in the
assets of an issuer which is a trust, with any such trust limited to
(a) a single or multi-family residential or commercial mortgage
investment trust, (b) a motor vehicle receivable investment trust,
or (c) a guaranteed governmental mortgage pool certificate
investment trust, and which entitles the holder to payments of
principal, interest and/or other payments made with respect to the
assets of the trust, the corpus or assets of which consist solely or
primarily of secured obligations that bear interest or are purchased
at a discount. For purposes of Section IV.A. of the proposed
exemption, Asset-Backed Securities are treated as debt Securities.
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E. Purchase in an Underwriting and Holding by BlackRock Managers of
Fixed Income Obligations Issued by a Third Party When an MPS is
Underwriter, Manager or Member of the Selling Syndicate, or a Debt
Trustee
33. The Applicants represent that BlackRock Managers in their
normal course may determine that an investment in a new offering of
third-party Fixed Income Obligations where an MPS is an underwriter,
manager or member of the selling syndicate and/or where an MPS is the
debt trustee will be a beneficial investment for Client Plans. As
discussed above, the purchase of Securities in an offering when an MPS
is a member or manager of the syndicate might convey an economic
benefit on such MPS. In addition, if an MPS is a debt trustee of such
Securities, the purchase might enable such MPS to earn a fee, or earn a
larger fee.\27\
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\27\ The Department has issued individual exemptions for
situations where an asset manager purchases securities in an
underwriting and an affiliate is trustee of the issuer. See, e.g.,
PTE 2003-24, granted to Deutsche Bank AG and JPMorgan Chase Bank, 68
FR 48637 (August 14, 2003).
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34. The Applicants estimate that the majority of the syndicated
offerings that they review as potentially attractive investments for
Client Plans include one or more MPS as an underwriter. Additionally,
multiple MPS are often ranked in the top five underwriters for total
debt issued in the Americas and globally. Thus, the failure to obtain
relief for primary market offerings due to an MPS acting as an
underwriter, whether as a manager or member, would deny Client Plans
access to a majority of primary market offerings for Fixed Income
Obligations.
35. In order for relief under the proposed exemption to be
available for this transaction, the following conditions apply: (a) The
conditions of Section IV.A. (Affiliated Underwritings) of the proposed
exemption must be satisfied; (b) such purchase must not be made from an
MPS; (c) no BlackRock Entity may be in the selling syndicate; and (d)
with respect to Fixed Income Obligations under which an MPS has either
an ongoing function, such as debt trustee, servicer of collateral for
asset-backed debt, or the potential for liability, such as under
representations or warranties made by an MPS with respect to collateral
for such asset-backed debt which the MPS originated, the taking of or
refraining from taking any action by the responsible BlackRock Manager
which could have a material positive or negative effect upon the MPS
must be decided upon by the ECO. For purposes of this Covered
Transaction, Asset-Backed Securities are not Fixed Income Obligations.
F. Purchase in an Underwriting and Holding by BlackRock Managers of
Asset-Backed Securities, When an MPS is Underwriter, in the Capacity as
Either a Manager or a Member of the Selling Syndicate, Trustee, or, in
the Case of Asset-Backed Securities Which Are CMBS, Servicer \28\
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\28\ Applicants note that the Department concluded under similar
circumstances that relief is not necessary for the purchase of
investment grade CMBS Securities on behalf of employee benefit plans
during an underwriting syndicate, where the investment manager is
related to an originator of one or more of the loans in the CMBS
pool, once the loan originator has transferred the loans to the pool
because the loan originator has no other responsibilities to the
pool other than a limited repurchase obligation. See Notice of
Proposed Exemption with respect to PTE 2008-16, 73 FR 60325, 60328
(Oct. 10, 2008).
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36. The Applicants represent that BlackRock Managers in their
normal course may determine that an investment in a new offering of
Asset-Backed Securities treated as equity for ERISA purposes where an
MPS is an underwriter, in the capacity as either a manager or a member
of the selling syndicate, or trustee (or, in the case of CMBS,
servicer, when the MPS serves solely as servicer and not as underwriter
or trustee while being such servicer) will be a beneficial investment
for Client Plans. The Applicants also represent that multiple MPSs are
often ranked in the top ten underwriters for Asset-Backed Securities.
Thus, the failure to obtain relief for primary market offerings due to
an MPS acting as an underwriter or CMBS Servicer would have a
significant impact on Client Plans. A failure to obtain relief would
prevent Client Plans from investing in a large part of the Asset-Backed
Securities market, resulting in tracking error for Index or Model
Driven Funds and greatly reducing opportunities for Other Funds or
Accounts.
37. In order for relief under the proposed exemption to be
available for this transaction, the following conditions apply: (a) The
conditions of Section IV.A. (Affiliated Underwritings) of the proposed
exemption must be satisfied, except that (i) for purposes of the
ratings requirement therein, the Asset-Backed Securities at the time of
purchase must be rated in one of the three highest rating categories by
a Rating Organization and none of the Rating Organizations may rate the
Asset-Backed Securities lower than the third highest rating category;
and (ii) in the case of Asset-Backed Securities which are CMBS and for
which the MPS is servicer, the conditions of Section IV.B. (Affiliated
Servicing) of the proposed exemption must be satisfied instead of the
conditions of Section IV.A. (Affiliated Underwritings) of the proposed
exemption (if an MPS serves in both an Affiliated Underwriting capacity
and an Affiliated Servicing capacity, both Section IV.A. and Section
IV.B. of the proposed exemption must be satisfied, with respect to the
applicable capacity); (b) such purchase must not be made from an MPS;
(c) no BlackRock Entity may be in the selling syndicate; (d) in the
case of Asset-Backed Securities with respect to which either (i) an MPS
has an ongoing function (such as trustee, or servicer of collateral for
CMBS) or (ii) the potential for liability exists (such as under
representations or warranties made by an MPS with respect to collateral
for CMBS which collateral the MPS originated), the taking of or
refraining from taking of any action by a responsible BlackRock Manager
which could have a material positive or negative effect upon the MPS
must be decided upon by the ECO; \29\ and (e) the purchase must meet
the conditions of an applicable ``Underwriter Exemption.'' \30\
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\29\ Relief is not provided in the proposed exemption for
purchases of Asset-Backed Securities in the primary market if an MPS
is a sponsor, swap counterparty, servicer (except in the case of
CMBS), originator (except in the case of CMBS), liquidity provider,
or insurer with respect to the Asset-Backed Securities. With respect
to originators and CMBS, see footnote 28.
\30\ As defined in the proposed exemption, ``Underwriter
Exemption(s)'' means a group of individual exemptions granted by the
Department to provide relief for the origination and operation of
certain asset pool investment trusts and the acquisition, holding
and disposition by plans of Asset-Backed Securities representing
undivided interests in those trusts. Such group of individual
exemptions was collectively amended by PTE 2009-31, 74 FR 59001
(Nov. 16, 2009).
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[[Page 15068]]
G. Purchase and Holding by BlackRock Managers of Equity Securities
Issued by an Entity Which Is Not an MPS and Is Not a BlackRock Entity,
in an Underwriting When an MPS is an Underwriter, in Either a Manager
or Member Capacity, of the Selling Syndicate
38. The Applicants represent that BlackRock Managers in their
normal course may determine that equity Securities issued by an
independent third party where an MPS is an underwriter, in either a
manager or a member capacity, of the selling syndicate will be a
beneficial investment for Client Plans.
39. The Applicants estimate that the majority of the syndicated
offerings that they review as potentially attractive investments for
Client Plans include one or more MPS as an underwriter. Additionally,
multiple MPS are often ranked in the top ten underwriters for equity
securities issued in the Americas and globally. Thus, a failure to
obtain relief for primary market offerings due to an MPS acting as an
underwriter would deny Client Plans access to a majority of primary
markets offerings for equity securities.
40. In order for relief under the proposed exemption to be
available for this transaction, such purchase and holding must meet the
following conditions: (a) The conditions of Section IV.A. (Affiliated
Underwritings) of the proposed exemption must be satisfied; (b) such
purchase must not be made from an MPS; (c) no BlackRock Entity may be
in the selling syndicate; and (d) the Securities must not be Asset-
Backed Securities.
H. Purchase and Sale by BlackRock Managers of Asset-Backed Securities
in the Secondary Market, From or to an MPS, and/or When an MPS is
Sponsor, Servicer, Originator, Swap Counterparty, Liquidity Provider,
Trustee or Insurer, and the Holding Thereof
41. The Applicants represent that BlackRock Managers in their
normal course may determine that the purchase in the secondary market
of Asset-Backed Securities treated as equity for ERISA purposes where
an MPS fills one of the captioned roles will be a beneficial investment
decision for Client Plans. There may also be situations where the
purchase or sale of such instruments to or from an MPS is in the
interests of Client Plans.
42. The Applicants represent that multiple MPSs are significant
counterparties for Asset-Backed Securities in the Secondary Market and
have large businesses as sponsor, servicer, originator, swap
counterparty, liquidity provider, trustee or insurer thereof. Thus, the
failure to obtain relief for secondary market purchases and sales with
an MPS or where an MPS is a CMBS servicer or fills one of the captioned
roles would have a significant impact on Client Plans. The failure to
obtain relief would prevent Client Plans from investing in a large part
of the Asset-Backed Securities market, resulting in tracking error for
Index or Model-Driven Funds and greatly reducing opportunities for
Other Funds or Accounts.
43. In order for relief under the proposed exemption to be
available for this transaction, the following conditions apply: (a) The
Asset-Backed Securities are purchased from or sold to an MPS as a
result of the Three Quote Process as defined in the proposed exemption;
(b) regardless of from whom the BlackRock Manager purchases the Asset-
Backed Securities, the purchase and holding of the Asset-Backed
Security otherwise must meet the conditions of an applicable
Underwriter Exemption;\31\ and (c) regardless of from whom the
BlackRock Manager purchased the Asset-Backed Securities, if an MPS is,
with respect to such Asset-Backed Securities, a sponsor, servicer,
originator, swap counterparty, liquidity provider, insurer or trustee,
as those terms are utilized or defined in the Underwriter Exemption,
and circumstances arise in which the taking of or refraining from
taking of any action (e.g., instituting legal action for breach of
representation, a decision with respect to dismissing or retaining a
special servicer, etc.) by the responsible BlackRock Manager could have
a material positive or negative effect upon the MPS, the taking of or
refraining from taking of any such action must be decided upon by the
ECO.
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\31\ In Advisory Opinion 99-03A (January 25, 1999) (sometimes
called the ``Lawson Letter''), the Department provided that an
affiliate of an ERISA fiduciary could provide sub-servicer services
to a trust invested in mortgage loans without violating ERISA
section 406(b) if the ERISA fiduciary could not use any of its
authority or control to change or influence, in any way,
compensation paid to the sub-servicer affiliate. The Applicants
represent that unless and until a decision must be made which could
materially affect an MPS performing one or more roles with respect
to Asset-Backed Securities the reasoning articulated in the Lawson
Letter should apply to such MPS roles.
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I. Repurchase Agreements When MPS Is the Seller
44. The Applicants represent that a BlackRock Manager may transfer
cash of a Client Plan to an MPS in exchange for Securities (e.g.,
Treasuries, corporate debt, etc.). The MPS will agree to buy back the
same Securities from the Client Plan at a fixed price or fixed spread
at an agreed upon later date. The Securities transferred serve as
collateral in the case of a default by the MPS. Applicants believe that
the value to plans of engaging in repurchase transactions was tacitly
recognized by the Department by including such transactions in PTE 81-
8, the prohibited transaction class exemption covering certain short-
term investments.\32\
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\32\ 46 FR 7511 (January 23, 1981); as amended, 50 FR 14043
(April 9, 1985).
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45. The Applicants represent that historically a BTC cash
management program has held a significant amount of Client Plan assets
invested in repurchase agreements with a counterparty who is now an MPS
(constituting roughly 25% of BTC's repurchase positions). Generally,
these Covered Transactions are ``on open,'' which means that they roll
over automatically but are subject to termination by either party every
business day. In practice, the ``on open'' repurchase transactions may
continue indefinitely with rates changing daily to reflect market
conditions as continually mutually agreed upon by the parties.
46. The Applicants further represent that there are an extremely
limited number of counterparties available for these large ``on open''
repurchase Covered Transactions. On any given day, it is very likely
that a single MPS will be the only counterparty for these overnight
``on open'' repurchase transactions. While BlackRock Managers may be
able to find another counterparty to bid on a repurchase transaction,
with like collateral and like terms, for a part of the overall amount,
it is likely that only one MPS would be available as a counterparty for
the full balance.
47. The Applicants represent further that on a daily basis, when
such Covered Transactions roll over, another counterparty may offer a
better rate than the one MPS, on that day for a partial size of the
repurchase balance. Despite this rate differential, for overnight
repurchase, on each business day, BlackRock Managers still need to
consider whether continuing the repurchase with the MPS for some or all
of the full repurchase balance is in the interests of the Client Plans.
If BlackRock Managers pull part of the
[[Page 15069]]
trades to place with another counterparty offering a better rate on a
particular day, such action can jeopardize the ability to re-place that
amount with the MPS, and to continue to place large amounts with the
MPS, since the MPS seeks consistent ongoing funding. Thus, over time,
BlackRock Managers may continue to roll over large repurchase
transactions with the MPS even though another counterparty may have
offered somewhat better terms for a fraction of the repurchase amount.
48. In order for relief under the proposed exemption to be
available for this transaction, the conditions of PTE 81-8 applicable
to repurchase agreements, with some revisions and additional
conditions, generally apply. Such revisions and additional conditions
include, but are not limited to: (a) The written agreement that is
referenced in Section III.A. of PTE 81-8 is required to be a
standardized industry form, with the exception of certain written
agreements entered into prior to the Acquisition and disclosed to the
ECO; and (b) the limitation on ``restricted securities'' that is
referenced in Section III.G. of PTE 81-8 is modified to permit Client
Plans to receive Securities that are ``restricted securities'' within
the meaning of Rule 144 under the 1933 Act, until July 31, 2010.
Additionally, while this proposed exemption, consistent with PTE 81-8,
provides that neither the MPS seller nor any MPS which is a member of
the same MPS Group may have discretionary authority or control with
respect to the investment of the Client Plan assets involved in the
transaction or render investment advice (within the meaning of 29 CFR
2510.3-21(c)) with respect to such assets, it also provides an
exception to such condition in the form of the 10% Rule.
49. In addition to the conditions of PTE 81-8, in order for relief
under the proposed exemption to be available for this transaction, two
additional conditions must be met:
(a) In the event of any dispute between a BlackRock Manager and an
MPS seller involving a Covered Transaction under Section I of the
proposed exemption, the IM must have the responsibility to decide
whether, and if so how, BlackRock is to pursue relief on behalf of the
Client Plan(s) against the MPS Seller; and
(b) At time of entry into or renewal of each Covered Transaction
under this Section III.I., including both term repurchase transactions
and daily renewals for ``open'' or ``overnight'' transactions, either
(i) each Covered Transaction under Section III.I. of the proposed
exemption, must be as a result of the Three Quote Process, or, (ii) the
BlackRock Manager must determine that the yield on the proposed
transaction, or the renewal thereof, is at least as favorable to the
Client Plans as the yield of the Client Plan on two (2) other available
transactions which are comparable in terms of size, collateral type,
credit quality of the counterparty, term and rate. The methodology
employed for purposes of the comparison in (ii) above must (iii) be
approved in advance by the ECO Function and (iv), to the extent
possible, refer to objective external data points, such as the
Eurodollar overnight time deposit bid rate, the rate for repurchase
agreements with U.S. government Securities, or rates for commercial
paper issuances or agency discount note issuances sourced from
Bloomberg, or another third party pricing service or market data
provider (which providers may use different terminology to refer to
these same external data points). The applicable BlackRock Manager must
record a description of the comparable transactions, if reliance is
placed upon same, and such data must be periodically reviewed by the
ECO Function. The procedures described in this paragraph 49(b) must be
designed to ensure that BlackRock Managers determine to only enter into
Covered Transactions with MPS sellers which are in the interests of
Plan Clients, and such procedures must be reviewed and may be commented
on by the IM.
J. Responding to Tender Offers and Exchange Offers Solicited by an MPS
50. One or more of the MPS are commonly hired by issuers of
securities to solicit holders of Securities regarding tender offers,
exchange offers and similar transactions. In such capacity, the MPS
acts as agent for its client. As the holder of trillions of dollars in
Securities, the Applicants commonly receive solicitations from such
agents in situations where BlackRock Managers are responsible for
exercising discretion on behalf of Client Plans to respond to such
solicitations. The compensation of the MPS for such services will be
paid by its client, may or may not vary with the relative success of
the offer, and the BlackRock Managers might or might not know how the
MPS is compensated. Client Plans would suffer harm if the BlackRock
Managers were unable to respond to such tender offers and exchanges.
51. In order for relief under the proposed exemption to be
available for this transaction, the following conditions must be met:
(a) The Client Plan pays no fees to the MPS in connection with this
Covered Transaction; (b) the BlackRock Manager must submit to the ECO
in advance of participation a written explanation of the reasons for
such participation; and (c) the ECO Function must determine that the
reasons for participation by the BlackRock Manager in the Covered
Transaction are appropriate from the vantage point of the Client Plans.
Effective October 1, 2010, the ECO Function must affirmatively make
this determination in writing prior to the BlackRock Manager
participating in the Covered Transactions under Section III.J. of the
proposed exemption.
K. Purchase in Underwritings of Securities Issued by an Entity Which Is
Not an MPS When the Proceeds Are Used To Repay a Debt to an MPS
52. The Applicants represent that the MPSs are very significant
lenders to domestic and foreign corporate and other third party
borrowers. Such third party borrowers may issue debt or equity
Securities in primary market offerings. BlackRock Managers might decide
that the purchase of such Securities would be in the interest of Client
Plans. The proceeds of such offerings might be used by the third party
issuers to repay debt owed to an MPS. BlackRock Managers purchasing
such Securities in a primary market offering might or might not know
whether the proceeds of the offering would be used to repay debt to an
MPS. The BlackRock Managers represent that Client Plans would be harmed
if they were unable to participate in primary market offerings based on
the possibility that some of the proceeds may be used to repay a pre-
existing debt to an MPS.
53. Relief under the proposed exemption is available for this
transaction if the BlackRock Manager does not know (within the meaning
of the proposed exemption) that the proceeds will be applied to the
repayment of debt owed to an MPS. If the BlackRock Manager does know
that proceeds of the offering will be applied to the repayment of debt
owed to an MPS, the purchase of the Securities and the payment of the
proceeds to the MPS qualify for relief under the proposed exemption
provided that no more than twenty percent (20%) of the offering is
purchased by BlackRock Managers for Client Plans, and no more than
fifty percent (50%) of the offering in the aggregate is purchased by
BlackRock, BlackRock Managers and other BlackRock Entities for Client
Plans, other clients of BlackRock Managers, or as proprietary
investments.
[[Page 15070]]
L. Bank Deposits and Commercial Paper
54. The Applicants represent that BlackRock Managers might decide
that it would be in the interest of Client Plans to invest in
certificates of deposit, time deposits or other bank deposits at an
MPS, or in commercial paper issued by an MPS. The applicants believe
that the potential merit of such investments was recognized by Congress
in enacting the statutory prohibited transaction exemption set forth in
ERISA section 408(b)(4) and by the Department in promulgating PTE 81-8.
55. The Applicants represent that the MPSs are significant issuers
of high quality bank debt including certificates of deposit, time
deposits, other bank deposits and commercial paper, and they are able
to take large deposits on short notice. The universe of large domestic
issuers of such instruments is contracting as a result of the
consolidation outlined above. Thus, BlackRock believes having MPSs
available to provide such instruments provides necessary liquidity and
portfolio diversification to Client Plans. The MPS are recognizable,
household names that Client Plans are familiar with and with which
Client Plans are comfortable with BlackRock holding on behalf of Client
Plans.
56. In order for relief under the proposed exemption to be
available for this transaction, the following conditions must be met:
(a) With respect to Covered Transaction involving bank deposits,
either (i)(A) the bank must be supervised by the United States or a
State, and at the outset of the Covered Transaction or renewal thereof
of, such bank must have a credit rating in one of the top two (2)
categories by at least one of the Rating Organizations; (B) neither the
bank nor an affiliate of the bank may have discretionary authority or
control with respect to the investment of Client Plan assets involved
in the Covered Transaction or render investment advice (within the
meaning of 29 CFR 2510.3-21(c)) with respect to those assets; and (C)
such deposit must bear a reasonable interest rate, or (ii) the
BlackRock Manager and the MPS must comply with ERISA section 408(b)(4);
(b) With respect to Covered Transactions involving investments in
commercial paper, the conditions of PTE 81-8 applicable to commercial
paper generally apply, except that the commercial paper is required to
be ranked in one of the two highest rating categories of one of the
Rating Organizations instead of one of the three highest rating
categories of one of the Rating Organizations, as permitted under PTE
81-8; and
(c) For purposes of the Covered Transactions set forth in this
Section III.L. of the proposed exemptions, (i) no BlackRock Entity
shall be regarded as an affiliate of an MPS bank at which a deposit is
made of Client Plan assets, nor of an MPS issuer of commercial paper in
which a BlackRock Manager invests Client Plan assets, and (ii) the 10%
Rule shall apply.
M. Securities Lending to an MPS
57. The Applicants represent that Securities loans, for this
purpose, consist of different types of loans, ``General Collateral Open
Loans,'' ``Special Open Loans,'' ``Term Loans,'' and ``Exclusive
Loans.'' In the past, BGI adopted a process to ensure, in accordance
with PTE 2002-46,\33\ that the terms of every loan made to an affiliate
of BGI (such as Barclays Capital Inc. (BCI)) were at least as favorable
to the Client Plan as those of comparable arm's length transactions
between unrelated parties. With effect from the date of the
Acquisition, BTC has adopted the same process for loans to an MPS as
previously employed with respect to loans to BCI.
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\33\ Granted to Barclays Global Investors, N.A., 67 FR 59569
(September 23, 2002).
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58. General Collateral (GC) Open Loans: The Applicants represent
that without regard to the identity of any given approved borrower, the
large majority of Securities loans are made using an ``auto borrow''
functionality by which the borrower can borrow ``general collateral,''
or very liquid Securities, in a non-negotiated manner, at a flat rate
that applies to all borrowers. Accordingly, all loans of GC collateral
are re-rated based on prevailing rates for the relevant Securities. An
MPS may be an approved borrower.
59. Special Open Loans: The Applicants represent that for those
loans not made using auto borrow, which involve more illiquid and thus
more desirable or ``special'' Securities, BlackRock Managers negotiate
the rebate rate individually with each borrower. The BlackRock Managers
rely upon technology built into BlackRock's trading systems which shows
them the rates for all other loans of the same Security to other
borrowers, as well as the general market rates for that Security from
third party data suppliers.
60. Term Loans: The Applicants represent that BTC may agree to lend
a specific Security, Securities (a basket), or fixed notional value of
non-specific Securities at a negotiated price for an agreed upon
duration longer than overnight. Such term loans can be GC or Special.
Term agreements with MPS borrowers must be executed at the best pricing
available at the time of negotiation. Since such agreements include
pricing terms for a specified period of time, they are not subject to
re-pricing or comparison to other loans through the agreed upon term.
61. Exclusive Loans: The Applicants represent that BTC may agree to
provide a single borrower with exclusive borrowing access to a fund for
a fixed duration. Exclusive access is awarded to the qualified borrower
with the highest bid. Income is accrued daily by charging a fee on the
notional value of the fund and not related to the Securities actually
borrowed, if any. Exclusive loan agreements with MPS borrowers must be
executed at the best pricing available at the time of negotiation.
Since such agreements include pricing terms for a specified period of
time, they are not subject to re-pricing or comparison to other loans
through the agreed upon duration of the agreement.
62. The Applicants represent that Open Loans, both GC and Special,
to an MPS must be subject to competitive pricing comparisons on the day
of execution and each day that the loans remain outstanding. All
Special Open Loans are re-priced on a periodic basis as market
conditions and supply/demand change. More specifically, BTC runs a
daily pricing comparison report that compares all Open Loans to all
borrowers, including an MPS, from its proprietary system, known as
Global Loan Manager. The report highlights loans that are no longer
priced in accordance with the arm's length transaction requirements of
PTE 2002-46, i.e., where market conditions such as supply and demand
have changed. If a loan to an MPS is not currently priced at least
equal to or better than the least favorable pricing to a non-MPS, such
loan is re-priced to the market pricing for such Security on the same
day. If the MPS does not accept the re-price, the loan is recalled.
63. The Applicants represent that if the price of a loan is
identified as not meeting the criteria described above but BlackRock
traders determine that the loan is not comparable to outstanding loans
with comparable non-MPS borrowers and therefore should not be re-
priced, the BlackRock trader must insert comments into Global Loan
Manager with a relevant explanation. This may be due to the size or
other characteristics of the various trades being compared. The Global
Loan Manager rate comparison report, including any such comments, will
then be re-generated and stored
[[Page 15071]]
electronically. The regenerated report is reviewed on a regular basis
(usually weekly) by the trading desk manager and signed off on by such
trading desk manager; hard copies of the report are saved. The ECO
performs a periodic review of this process.
64. The Applicants represent that it is generally more beneficial
to have a Security on loan than not, and it may not be possible to
relend the same Security to another borrower. In repricing a loan, the
loan will only be re-priced to a rate that is within the range of other
loans of that Security to non-MPS borrowers, and the loan will only be
re-priced to a rate at which, in the BlackRock Manager's judgment, it
would be more favorable to the lending Client Plan to re-price the loan
at that rate than to terminate the loan.
65. The Applicants represent that based on the foregoing, ongoing
loans will meet an arm's length standard but may not always remain at
the absolute ``best'' rate in the market during the entire time the
loan is outstanding. Borrowers are not fungible (e.g., they don't have
infinite demand for a given Security, and the willingness to pay varies
by broker). Thus, rates will vary across borrowers over time, and the
only way to ensure all loans to MPSs are always at the absolute best
rate paid by all other borrowers would be to simply lend less to the
MPS. Unfortunately, however, lending less would reduce client revenue
and consequently is not in the Client Plans' interests.
66. The proposed exemption will only apply (a) to the lending of
Securities by a BlackRock Manager that are assets of a Client Plan to
an MPS which is a ``U.S. Broker-Dealer'' (as defined in the proposed
exemption) or a ``U.S. Bank'' (as defined in the proposed exemption),
provided that the conditions set forth in Section III.M.2. of the
proposed exemption are met; (b) to the lending of Securities by a
BlackRock Manager that are assets of a Client Plan to an MPS which is a
``Foreign Broker-Dealer'' (as defined in the proposed exemption) or
``Foreign Bank'' (as defined in the proposed exemption), provided that
the conditions set forth in Sections III.M.2 and III.M.3. of the
proposed exemption are met; and (c) to the payment to a BlackRock
Manager of compensation for services rendered in connection with loans
of Client Plan assets that are Securities to an MPS, provided that the
conditions set forth in Section III.M.4. of the proposed exemption are
met.
67. In order for relief under the proposed exemption to be
available for Covered Transactions described in paragraphs 66(a) and
(b), the conditions of Section II of PTE 2006-16 \34\ shall generally
apply, with some revisions and additional conditions. For example, in
addition to the conditions of Section II of PTE 2006-16, the proposed
exemption requires that the length of a securities loan to an MPS must
not exceed a one-year term. Additionally, although the proposed
exemption, consistent with PTE 2006-16, provides that neither the MPS
borrower nor any MPS affiliate which is a member of the same MPS Group
as the MPS borrower has or exercises discretionary authority or control
with respect to the investment of the Client Plan assets involved in
the transaction, or renders investment advice (within the meaning of 29
CFR 2510.3-21(c)) with respect to those assets, it also provides an
exception to such condition in the form of the 10% Rule.
---------------------------------------------------------------------------
\34\ 71 FR 63786 (Oct. 31, 2006).
---------------------------------------------------------------------------
68. In addition to the general conditions of PTE 2006-16, in order
for relief under the proposed exemption to be available for this
transaction, additional conditions must be met:
(a) The written loan agreement must be a standardized industry
form; provided, that, with the approval of the ECO on or about the date
of the Acquisition, written loan agreements with an MPS borrower that
were in effect as of the date of the Acquisition may continue to be
used until there is a material modification of the same, at which time
standardized industry forms must be adopted (Section III.M.2.(h));
(b) all fees and other consideration received by the Client Plan in
connection with the loan of Securities must be reasonable. The identity
of the currency in which the payment of fees and rebates will be made
must be set forth either in the written loan agreement or the loan
confirmation as agreed to by the MPS borrower and the BlackRock Manager
prior to the making of the loan;
(i) Pricing of a loan to an MPS borrower must be based on rates for
comparable loans of the same Security to non-MPS borrowers and third-
party market data:
(A) For loans of liquid Securities (sometimes referred to as
general collateral loans) an automatic system may be used to price
loans so long as the resulting rate the Client Plan receives from the
MPS borrower is at least as favorable to the Client Plan as the rate
the BlackRock Managers are receiving for Client Plans or other clients
from non-MPS borrowers of the same Security; and
(B) For purposes of pricing loans of less liquid Securities
(sometimes referred to as special loans), and for purposes of
determining whether to terminate or continue a loan which does not have
a set term, pricing may also be based on a BlackRock trader
determination that continuing the loan is in the interest of the Client
Plan based on all relevant factors, including price (provided that
price is within the range of prices of other loans of the same Security
to comparable non-MPS borrowers by BlackRock Managers for Client Plans
or other clients) and potential adverse consequences to the Client Plan
of terminating the loan, provided that the pricing data used in making
these decisions must be retained and made available for possible review
by the ECO; and
(ii) Automatic pricing mechanisms and pricing decisions by traders
must be subject to ongoing periodic review by the ECO Function, and the
results of such review must be included in reports by the ECO to the
IM. Specifically, the quarterly reports by the ECO to the IM must
address the lending patterns of (I) illiquid Securities to the MPS
borrowers from all Client Plans, including the percentage that loans of
such Securities to the MPSs represent of all loans of such Securities
from all Client Plans; and (II) illiquid Securities to the MPS
borrowers from all Other Accounts or Funds, including the percentage
that loans of such Securities to the MPSs represent of all loans of
such Securities from all Other Accounts or Funds (Section III.M.2.(j));
(c) If the Securities being loaned to an MPS borrower are managed
in an Index Account or Fund, or a Model-Driven Account or Fund where
the Index or the Model are created or maintained by the MPS borrower,
the ECO Function periodically must perform a review, no less than
quarterly, of the use of such MPS-sponsored Index or Model, and the
Securities loaned from such an account or fund to the MPS, which review
is designed to enable a reasonable judgment as to whether the use of
such Index or Model, or any changes thereto, were for the purpose of
benefitting BlackRock or the MPS through the Securities lending
activity described in this Section III.M. of the proposed exemption. If
the ECO forms a reasonable judgment that the use of such Index or
Model, or any changes thereto were for the purpose of benefitting
BlackRock or the MPS, the ECO must promptly inform the IM (Section
III.M.2.(p));
(d) In the event of any dispute between the BlackRock Manager on
behalf of a Client Plan and an MPS borrower involving a Covered
Transaction under Section III.M. of the
[[Page 15072]]
proposed exemption, the IM shall decide whether, and if so, how the
BlackRock Manager is to pursue relief on behalf of the Client Plan(s)
against the MPS borrower (Section III.M.2.(q)); and
(e) If the Securities being loaned to an MPS borrower are managed
in an Other Account or Fund, the employees of the BlackRock Manager who
exercise discretionary authority or control over the Other Account or
Fund shall not have access to the information regarding whether the
particular Securities are on loan to an MPS, with such access
limitations imposed on or about September 30, 2010 and implemented
through the EPPs on or about September 30, 2010 (Section III.M.2.(q)).
69. In order for relief under the proposed exemption to be
available for Covered Transactions described in paragraph 66(b),
BlackRock must comply with the conditions of Section III of PTE 2006-
16.
70. In order for relief under the proposed exemption to be
available for Covered Transactions described in paragraph 67(c), the
conditions of Section IV of PTE 2006-16 generally apply, with one
revision. The proposed exemption provides that the compensation
received by the BlackRock Managers must be paid under terms at least as
favorable to the Client Plan as an arm's length transaction with an
unrelated party.
N. To-Be-Announced Trades (TBAs) of GNMA, FHLMC or FNMA Mortgage-Backed
Securities With an MPS Counterparty
71. The Applicants represent that BlackRock Managers might decide
it would be advantageous to trade GNMA (as defined in the proposed
exemption), FHLMC (as defined in the proposed exemption) or FNMA (as
defined in the proposed exemption) mortgage-backed Securities with an
MPS counterparty on a ``to-be-announced'' basis. A ``TBA'' is a
contract for the purchase or sale of such agency mortgage-backed
Securities to be delivered at a future agreed-upon date. The actual
pool identities or the number of pools that will be delivered to
fulfill the trade obligation or terms of the contract are unknown at
the time of the trade but must meet the ``Guidelines of Good Delivery''
established by the Depository Trust & Clearing Corporation. TBA trading
is based on the assumption that the specific mortgage pools which will
be delivered are fungible, and thus do not need to be explicitly known
at the time a trade is initiated. The TBA market for agency mortgage-
backed Securities has been referred to as the most liquid, and
consequently most important, secondary market for mortgage loans in the
world. Given that TBAs allow institutional accounts to buy and sell
mortgage exposure in a large and liquid manner, TBAs are a useful tool
in furthering the investment objectives of such clients. Certain of the
MPSs maintain deep franchises in the agency mortgage-backed Securities
trading market. As TBAs are one of the largest and most active parts of
the mortgage-backed Securities market, having the ability to trade
agency mortgage-backed Securities with an MPS counterparty on a TBA
basis in the ordinary course of business could significantly assist
BlackRock Managers in providing high quality and competitive service to
Client Plans managed by BlackRock. BlackRock Client Plans could be
disadvantaged if BlackRock Managers are unable to access the platforms
of the MPSs in agency mortgage-backed Securities trading.
72. The Applicants represent that while there has been concern
recently with respect to public debt issued by FHLMC and FNMA and
specifically whether such debt would be backed by the federal
government, there has been little concern regarding default risk with
respect to the FHLMC or FNMA mortgage-backed Securities. Such mortgage-
backed Securities currently trade with virtually no difference on
return from GNMA mortgage-backed Securities based on any perceived
difference in credit quality due to the implicit guarantee of FHLMC and
FNMA mortgage-backed Securities (in contrast to the explicit government
guarantee of GNMA mortgage-backed Securities), as a result of recent
actions by the US government. Even before those actions, any difference
in return based on a perception of credit differences was minimal, in
the order of two to five basis points. Furthermore, other factors, such
as depth of liquidity (for example, FHLMC Securities typically have
deeper liquidity than FNMA or GNMA Securities) have as great an effect,
if not a greater effect, on returns as perceived credit differences.
73. In order for relief under the proposed exemption to be
available for these transactions: (a) The Covered Transactions must be
a result of the Three Quote Process; provided, that, solely for
purposes of these transactions, firm quotes under the Three Quote
Process may also include firm quotes obtained on comparable Securities,
as described below, when firm quotes with respect to the applicable TBA
transactions are not reasonably attainable; (b) with regard to
purchases of FHLMC and FNMA mortgage-backed Securities on a TBA basis
(i) the BlackRock Manager must make a determination that such
Securities are of substantially similar credit quality as GNMA
guaranteed governmental mortgage pool certificates; (ii) the ECO (in
regular consultation with and under the supervision of the IM) must
monitor the credit spread between GNMA and FHLMC/FNMA mortgage-backed
Securities; and (iii) each of the ECO and the IM (independently) must
have the authority and responsibility to determine whether purchases of
FHLMC and/or FNMA mortgage-backed Securities on a TBA basis should not
be permitted due to such credit spread, and such authority and
responsibility must be reflected in the EPPs; and (c) with regard to
possible delivery of underlying Securities to Client Plans, as opposed
to cash settlement, the ECO Function must approve any such delivery in
advance.
74. For purposes of these transactions, ``comparable Securities''
described in clause (a) of paragraph 73 are Securities that: (a) Are
issued and/or guaranteed by the same agency, (b) have the same coupon,
(c) have a principal amount at least equal to but no more than two
percent (2%) greater than the Security purchased or sold, (d) are of
the same program or class, and (e) either (i) have an aggregate
weighted average monthly maturity within a 12-month variance of the
Security purchased or sold, but in no case can the variance be more
than ten percent (10%) of such aggregate weighted average maturity of
the Securities purchased or sold, or (ii) meet some other comparable
objective standard containing a range of variance that is no greater
than that described in (i) above and that assures that the aging of the
Securities is properly taken into account.\35\
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\35\ The Department has previously adopted a similar concept for
``replacement'' mortgage-backed Securities in the context of lending
such Securities in PTE 94-88, 60 FR 483 (January 4, 1995).
---------------------------------------------------------------------------
O. Foreign Exchange Transactions With an MPS Counterparty
75. The BlackRock Managers represent that they frequently engage in
foreign exchange transactions on behalf of Client Plans. For example,
foreign exchange transactions are typically necessary to facilitate the
settlement of the purchase or sale of a non-US security. The Applicants
represent that the types of foreign currency Covered Transactions at
issue are those described in PTE 94-20,\36\ the prohibited transaction
class exemption relating to certain employee benefit plan foreign
exchange transactions, i.e., options, spot trades, forwards and splits.
[[Page 15073]]
The Applicants represent that the primary market makers in foreign
exchange are the largest banks in the world, and external surveys
consistently rank multiple MPSs as major counterparties in this
market.\37\ Client Plans would be harmed if they were forced to exclude
such MPS counterparties from the limited number of large banks that
make markets in foreign exchange. These banks deal with each other
constantly, either on behalf of themselves or their customers. The
market on which these banks conduct foreign exchange transactions is
called the ``interbank market.''
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\36\ 59 FR 8022 (Feb. 17, 1994).
\37\ FX Poll: Euromoney's Annual FX Market Ranking, http://
www.Euromoney.com, http://www.euromoney.com/poll/3301/
PollsAndAwards/ (last visited Jan. 31, 2011).
---------------------------------------------------------------------------
Parties transacting other than in the interbank market transact by
referencing the interbank rate, which is the rate representative of the
rate at which dealers in currencies (i.e., banks) are willing to
transact with one another. Transacting in the actual foreign exchange
interbank market is limited to dealers only, and does not include buy
side firms such as investment managers. Accordingly, full transparency
in terms of quotes (bids and offers) is limited to the dealers only.
76. In order for relief under the proposed exemption to be
available for this transaction, the following conditions must be met:
(a)(i) The Foreign Exchange Transaction must be as a result of the
Three Quote Process; or (ii) the total net amount of the Foreign
Exchange Transaction on behalf of Client Plans by BlackRock Managers
must be greater than $1 million and the exchange rate must be within
0.5% above or below the Interbank Rate (as defined in the proposed
exemption) as represented to the BlackRock Managers by the MPS; (b) the
Foreign Exchange Transactions with an MPS counterparty will only
involve currencies of countries that are classified as ``developed'' or
``emerging'' markets by a third party Index provider that divides
national economies into ``developed,'' ``emerging'' and ``frontier''
markets. The Index provider shall be selected by BlackRock, provided,
however, the IM shall have the right to reject the Index provider in
its sole discretion at any time; and (c) each Foreign Exchange
Transaction complying with paragraph 76(a)(ii) must be set forth in the
applicable quarterly reports of the ECO to the IM.
P. Agency Execution of Equity and Fixed Income Securities Trades and
Related Clearing as Described in PTE 86-128, Including Agency Cross
Trades, When the Broker Is an MPS
77. MPS broker-dealers are key brokers in both the equity and fixed
income markets. For example, the NASDAQ Stock Market ranked two MPS
brokers as top ten liquidity providers for September 2010.\38\ The
Applicants represent that: BlackRock Managers need the ability to
utilize the brokerage services offered by the MPSs, especially in light
of the consolidation of the financial services sector; BlackRock
Managers have a long history of using MPS brokers to affect Securities
trades, and to continue normal trading practices with these brokers
will benefit Client Plans; and, Client Plans would be harmed if they
were unable to access the liquidity provided by such MPS brokers. The
proposed exemption would include the relief available under Section II
of PTE 86-128,\39\ the prohibited transaction class exemption for
securities transactions involving employee benefit plans and broker-
dealers, as if BlackRock Managers and MPS broker-dealers were
``affiliates'' as defined in Section I(b) of PTE 86-128; however,
certain conditions would be modified, as described herein.
---------------------------------------------------------------------------
\38\ Top Ten Liquidity Providers--December 2010, http://
www.NASDAQOMXtrader.com, http://www.nasdaqtrader.com/
trader.aspx?ID=topliquidity (last visited Jan. 28, 2011).
\39\ 51 FR 41686 (November 18, 1986), as amended, 67 FR 64137
(October 17, 2002).
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78. The conditions applicable to this transaction are:
(a) The MPS must be selected to perform Securities brokerage
services for Client Plans pursuant to the normal brokerage placement
practices, policies and procedures of the BlackRock Manager designed to
ensure best execution;
(b) The conditions of PTE 86-128 set forth in the following
sections of that exemption must be complied with: Section III(e);
Section III(f); Section III(g)(2); and Section III(h); provided,
however, that the first sentence of section III(h) of PTE 86-128 is
amended for purposes of this paragraph to provide as follows: ``A
trustee [other than a nondiscretionary trustee] may only engage in a
covered transaction with a plan that has total net assets with a value
of at least $50 million and in the case of a pooled fund, the $50
million requirement will be met if fifty percent (50%) or more of the
units of beneficial interest in such pooled fund are held by investors
having total net assets with a value of at least $50 million.'' The
conditions of Section III of PTE 86-128 that are not included as
conditions herein are generally the conditions that would relate to
actions required of, or information to be provided to, a Client Plan's
independent fiduciary, and the revision to the first sentence of
Section III(h) of PTE 86-128 changes the $50 million calculation to
include all investors, instead of limiting such calculation to only
employee benefits plans;
(c) The ECO Function must receive the information required to be
provided to the ``authorizing fiduciary'' under Section III(e), Section
III(f) and Section III(g)(2) of PTE 86-128, and the ECO must have the
authority to terminate the use of the MPS as broker-dealer without
penalty to Client Plans at any time;
(d) With respect to agency cross transactions described in Section
III(g) of PTE 86-128 that are being effected or executed by an MPS
broker, (i) neither the MPS broker effecting or executing the agency
cross transaction nor any member of the same MPS Group as the MPS
broker effecting or executing the agency cross transaction may have
discretionary authority to act on behalf of, and/or provide investment
advice to another party to the agency cross transaction which is a
seller when the Client Plan is a buyer, or which is a buyer, when the
Client Plan is a seller (Another Party), and (ii), the BlackRock
Manager instituting the transaction for the Client Plan must not have
knowledge that a BlackRock Entity has discretionary authority and/or
provides investment advice to Another Party to the agency cross
transaction;
(e) The exceptions in Sections IV(a), (b) and (c) of PTE 86-128 are
applicable to the proposed exemption; and
(f) Notwithstanding the other conditions of Section III.P. of the
proposed exemption, with respect to Client Plans which as of the date
of the Acquisition had in place with BlackRock Managers either directed
brokerage and/or wrap fee arrangements which required the BlackRock
Managers to use an MPS as a Securities broker, BlackRock Managers may
continue to use that MPS as the Securities broker for such Client Plans
under the brokerage procedures in place as of the date of the
Acquisition; provided that a list of all such arrangement has been
provided to the ECO and no material changes are made to arrangements.
This last condition is referred to herein as the ``Existing Directed
Brokerage and/or Wrap Fee Arrangement Exception.''
[[Page 15074]]
Q. Use by BlackRock Managers of Exchanges and Automated Trading Systems
on Behalf of Client Plans
79. As outlined above, BlackRock is the largest publicly-traded
U.S. investment management firm. Funds and Accounts buy, sell, or
otherwise transact in securities, futures contracts, and foreign
exchange to the extent contemplated by Fund or Account investment
guidelines. A number of Index and Model-Driven Funds attempt to either
track or outperform the index for a specific non-U.S. country or
geographic region (such as Emerging Markets, World ex U.S., Asia
Pacific, etc.). To do so, such Index and Model-Driven Funds must be
able to buy and sell securities that are listed on the relevant non-
U.S. exchanges. Additionally, a number of Index and Model-Driven Funds
hold long positions in stock or bond index futures contracts to
``equitize'' or ``bondize'' dividends or other cash to be received by
the Index and Model-Driven Fund (including for liquidity purposes).
Foreign currency trading is a necessary adjunct to such trading. As of
November 30, 2010, BlackRock managed, in the aggregate, more than $100
billion in assets for more than 100 Index and Model Driven Funds or
Accounts with non-U.S. geographic benchmarks that include more than 50
countries.
The evolution of electronic trading over the last few decades has
led to improvements in the trading processes within established
exchanges. For example, computerized trading systems have largely
replaced trading pits utilizing paper tickets as the primary execution
method within numerous established exchanges. Additionally, over the
last few decades a number of established Automated Trading Systems have
gained widespread market acceptance for transacting in equities, fixed
income obligations and foreign currency which permits BlackRock
Managers to reduce the transaction costs for Client Plans.
The establishment of electronic trading over the last few decades
has led to increased operational efficiencies, improved price
discovery, and higher overall liquidity for plans and other investors.
As financial markets have embraced electronic markets and decimal
pricing, spreads have been reduced significantly. The advent of
multiple execution venues for Securities and other assets encourages
competition amongst market participants, driving transaction costs
lower for plans and other investors.
80. The Applicants represent that one or more of the MPSs have
ownership interests in one or more U.S. or non-U.S. exchanges and
Automated Trading Systems. The use of such exchanges and Automated
Trading Systems by BlackRock Managers increases operational
efficiencies, minimizes transaction costs and improves liquidity, all
of which are inherently beneficial to Client Plans. The Applicants
represent that Client Plans would be harmed if they were unable to
access such trading venues.
81. In order for relief under the proposed exemption to be
available for this transaction, the following conditions must be met:
(a) Prior to January 1, 2011:
(i) No single MPS (together with other members of the same MPS
Group) may have a greater than twenty percent (20%) ownership interest
in the exchange or the ATS; and
(ii) The ECO does not make a determination, summarized in the ECO
quarterly report, that a BlackRock Manager or all BlackRock Managers
must discontinue such direct or indirect use of or the directing of
trades to any such exchange or ATS on the basis that either the amount
of use or the volume of trades is unwarranted or not in the interests
of the Client Plans and their participants and beneficiaries; and
(b) From and after January 1, 2011, either:
(i) No one MPS (together with other members of the same MPS Group)
may have (A) a greater than ten percent (10%) ownership interest in the
exchange or ATS or (B) the BlackRock Managers do not know the level of
such ownership interest; or
(ii) A BlackRock Manager knows that an MPS (together with other
members of the same MPS Group) has a greater than ten percent (10%)
ownership interest but no greater than twenty percent (20%) ownership
interest in the exchange or ATS,
(A) The ECO makes a determination, summarized in the ECO quarterly
report, that there is no reason for a BlackRock Manager or all
BlackRock Managers to discontinue such direct or indirect use of or the
directing of trades to any such exchange or ATS on the basis that the
amount of use or the volume of trades is unwarranted or not in the
interests of the Client Plans and their participants and beneficiaries,
and does not make a determination that a BlackRock Manager or all
BlackRock Managers must discontinue such direct or indirect use of or
the directing of trades to any such exchange or ATS on the basis that
the amount of use or the volume of trades is unwarranted or not in the
interests of the Client Plans and their participants and beneficiaries.
The IM may request any additional information relating to any such
determination summarized in the ECO quarterly report and may, after
consultation with the ECO, make a determination that a BlackRock
Manager or all BlackRock Managers must discontinue such direct or
indirect use of or the directing of trades to any such exchange or ATS
on the basis that the amount of use or the volume of trades is
unwarranted or not in the interests of the Client Plans and their
participants and beneficiaries;
(B) The price and compensation associated with any purchases or
sales utilizing such exchange or ATS must not be greater than the price
and compensation associated with an arm's length transaction with an
unrelated party; and
(C) All such exchanges and ATSs must be situated within the
jurisdiction of the U.S. District Courts and regulated by a U.S.
federal regulatory body or a U.S. federally approved self-regulatory
body provided that this condition shall not apply to the direct or
indirect use of or the directing of trades to an exchange in a country
other than the United States which is regulated by a government
regulator or a government approved self-regulatory body in such country
and which involve trading in Securities (including the lending of
Securities) or futures contracts.
The Applicants further request that the Department confirm that for
purposes of PTE 2002-30 \40\ BlackRock Entities and MPSs are not
regarded as ``affiliates.'' The Department concurs.
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\40\ 67 FR 39069 (June 6, 2002).
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R. Purchases in the Secondary Market of Common and Preferred Stock
Issued by an MPS by BlackRock Managers for Client Plans Invested in an
Index Account or Fund, or a Model-Driven Account or Fund
82. The MPS include several issuers of publicly traded equity
securities with combined market capitalizations, as of November 11,
2010, of nearly $200 billion. As a result, the Applicants represent
that common or preferred stock issued by an MPS may be included as an
important constituent in an Index used by an Index Fund or a Model used
by Model-Driven Fund managed by a BlackRock Manager. Thus, although the
purchase of Securities issued by MPSs may convey an economic benefit on
the MPS, the purchase may be necessary for a portfolio to track the
underlying benchmark. If Client Plans were unable to invest in such
Securities, it could result in tracking error for applicable
[[Page 15075]]
funds and accounts. The Applicants believe there is a sound basis for
concluding that an exemption is not necessary to acquire and hold MPS
stock under such circumstances, but, given the breadth of the
exemption, the Applicants believe that requesting the certitude of
exemptive relief on this point is appropriate.
83. In order for relief under the proposed exemption to be
available for this transaction, the following conditions must be
satisfied: (a) Such purchase is for the sole purpose of maintaining
quantitative conformity with the weight of such Securities prescribed
by the relevant Index, for Index Accounts or Funds, or the weight of
such Securities prescribed by the relevant Model, for Model-Driven
Accounts or Funds, and such purchase may not exceed the purchase amount
necessary for such Model or quantitative conformity; and (b) the
purchases must not be made from the issuing MPS. The Existing Directed
Brokerage and/or Wrap Fee Arrangement Exception applies.\41\
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\41\ BlackRock Managers may rely on other exemptive relief,
whether statutory, class or individual, when acquiring stock of an
MPS for Client Plans under either Section III.R. or Section III.S.
of the proposed exemption through an MPS broker, including the
issuing MPS.
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S. Purchase in the Secondary Market of Common and Preferred Stock
Issued by an MPS by BlackRock Managers for Client Plans Invested in an
Other Account or Fund
84. As stated above, the MPSs include several issuers of publicly
traded equity securities with combined market capitalizations, as of
November 11, 2010, of nearly $200 billion. As a result, such securities
may comprise an important portion of an Other Account or Fund's
investment universe. The Applicants represent that BlackRock Managers
might decide that common or preferred stock of an MPS is an appropriate
investment for a Client Plan account or a pooled fund that is not an
Index Fund or a Model-Driven Fund. If Client Plans were unable to
invest in such Securities, it could adversely result in the loss of
investment opportunity for such funds and accounts.
85. In order for relief under the proposed exemption to be
available for this transaction, the following conditions must be
satisfied:
(a) Such purchase must not be made from the issuing MPS;
(b) The Existing Directed Brokerage and/or Wrap Fee Arrangement
Exception applies with respect to this transaction as well; and
(c) With respect to such Client Plans with existing directed
brokerage and/or wrap fee arrangements, the ECO Function periodically
must monitor purchases of MPS stock for such Client Plans to ensure
that the amount of stock of an MPS purchased for such Client Plans is
not disproportionate to the amount of such stock of the same MPS
purchased for Client Plans invested in Other Accounts or Funds not
subject to directed brokerage and/or wrap fee arrangements;
(d) As a consequence of a purchase of MPS stock, the class of stock
purchased must not constitute more than five percent (5%) of the Other
Account or Fund. In the case of a Pooled Fund, the class of stock
purchased and attributed to each Client Plan must not exceed five
percent (5%) of such Client Plan's proportionate interest in the Pooled
Fund.
(e) Aggregate daily purchases of a class of MPS stock for Client
Plans must not exceed the greater of (i) fifteen percent (15%) of the
aggregate average daily trading volume (ADTV) for the previous ten (10)
trading days, or (ii) fifteen percent (15%) of trading volume on the
date of the purchase. These volume limitations must be met on a
portfolio manager by portfolio manager basis unless purchases are
coordinated among portfolio managers, in which case the limitations are
applied to the coordinated purchase.\42\ Any coordinated purchases of
the same class of MPS stock in the secondary market for Index Accounts
or Funds or for Model-Driven Accounts or Funds must be taken into
account when applying these ADTV limitations on purchases for an Other
Account or Fund; provided, however, if coordinated purchases for Index
Accounts or Funds, or for Model-Driven Accounts or Funds, would cause
the fifteen percent (15%) limitation to be exceeded, BlackRock Managers
can nonetheless acquire for Other Accounts or Funds up to the greater
of five percent (5%) of ADTV for the previous ten (10) trading days or
five percent (5%) of trading volume on the day of the Covered
Transaction. For purposes of this paragraph 85(e), cross trades of MPS
equity Securities which comply with an applicable statutory or
administrative prohibited transaction exemption are not taken into
account; and
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\42\ For example, if two portfolio managers send their purchase
orders to the same trading desk and the traders on that trading desk
coordinate the purchases of the same MPS equity Securities, the
limitations apply to the trading desk.
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(f) The ECO Function must monitor the volume limits on purchases of
MPS stock described in paragraph 85(e) and must provide a monthly
report to the IM with respect to such purchases and limits. The IM
shall impose lower volume limitations and take other appropriate action
with respect to such purchases if the IM determines on the basis of
these reports by the ECO and publicly available information materially
related to the trading of the Securities of an MPS on its primary
listing exchange (or market) that the purchases described have a
material positive impact on the market price for such Securities.
T. The Provision of Custodial, Administrative and Similar Ministerial
Services by an MPS for a Client Plan as a Consequence of a BlackRock
Manager Exercising Investment Discretion on Behalf of the Client Plan
or Rendering Investment Advice to the Client Plan
86. The Applicants represent that MPSs commonly provide custodial,
administrative and similar ministerial services (e.g., collective fund
custodial services, recordkeeping, etc.) to numerous entities,
including plans and ERISA look-through entities, and BlackRock Managers
may decide that retaining an MPS to provide custodial or administrative
services is in the interests of Client Plans.
87. In order for relief under the proposed exemption to be
available for this transaction, the proposed exemption provides that
(a) the terms of such service are comparable to those a Client Plan
would receive in an arm's length transaction with an unrelated party
and (b) the ECO approves in advance and in writing (which may include
electronic communication if retrievable by the ECO) the choice or
recommendation of the MPS by the BlackRock Manager and the terms of the
services, including but not limited to, the associated fees.\43\
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\43\ The Applicants did not request relief, and the Department
agrees that such a request would be unnecessary, in situations where
such services are performed for Client Plans at the direction of a
Client Plan fiduciary independent of a BlackRock Entity (or an MPS)
if neither BlackRock (nor an MPS) renders ``investment advice'' in
connection with such determination.
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U. Purchases, Sales and Holdings by BlackRock Managers for Client Plans
of Commercial Paper Issued by ABCP Conduits, When an MPS Has One or
More Roles
88. The Applicants represent that in the past, the BGI cash
management program purchased and sold, and at present and in the future
BTC and other BlackRock Managers may purchase and sell, significant
amounts of commercial paper for Client Plans through
[[Page 15076]]
commercial paper conduits, with respect to some of which an MPS, such
as BOA, acts as the program administrator, placement agent, liquidity
provider and/or credit support provider.
89. The Applicants represent that an ABCP Conduit is a special
purpose vehicle that acquires assets from one or more originators and
issues commercial paper to provide funding to the originator(s).
Conduits are typically administered by a bank which provides liquidity
support (standing ready to purchase the conduit's commercial paper if
it cannot be rolled over) and/or credit support (committing to cover
losses in the event of default). The program administrator also
typically acts as placement agent for the commercial paper, sometimes
together with one or more other placement agents.
90. The Applicants represent that commercial paper issued by a
conduit may be purchased directly from the program administrator or
other placement agent, or traded on the secondary market with another
broker-dealer making a market in the Securities.
91. If an MPS acts as program administrator and placement agent in
a conduit, the MPS is compensated as follows: (a) In the case of asset-
backed commercial paper purchased directly from the MPS in its capacity
as placement agent, the MPS receives a fee, typically five basis
points; and (b) in the case of asset-backed commercial paper purchased
from another broker-dealer, the MPS receives a fee (the amount of which
is not made public) in connection with its services as program
administrator, or as a provider of credit and/or liquidity support.
92. A BlackRock Manager might determine it is in the interest of
Client Plans to purchase commercial paper in a primary offering
directly from the placement agent(s) or trade in the secondary market
with the placement agent(s) or another broker-dealer that makes a
market in the Securities. In ABCP Conduits where an MPS is a program
administrator, or is providing liquidity and/or credit support, the
role(s) of the MPS might give rise to prohibited transactions on the
part of BlackRock Managers, whether the BlackRock Manager purchases
directly from the MPS or from another broker-dealer. In many cases
there will not be three counterparties with which the BlackRock Manager
can trade such Securities. In particular, in the case of purchases in
the primary offering, the Securities frequently can only be purchased
from the administrator (e.g., an MPS), acting as the placement agent.
There may be only one placement agent (e.g., an MPS). If there is more
than one placement agent, they will all offer the Securities in the
primary offering at the same price. As a practical matter, there are
many circumstances where there will not be competing prices for these
Securities even in the secondary market. As in the case of repurchase
agreements, a BlackRock Manager is able to determine the
competitiveness of pricing of the ABCP Conduit commercial paper by
reference to prevailing rates above Treasuries for comparable short-
term money market instruments rated in the same category.
93. In order for relief under the proposed exemption to be
available for this transaction, the following conditions are
applicable:
(a)(i) The Client Plan must not be an MPS Plan of the MPS with whom
the purchase or sale takes place, or an MPS Plan of another member of
the same MPS Group as such MPS; and (ii) the Client Plan must not be an
MPS Plan of an MPS which is acting in a continuing capacity, or an MPS
Plan of another member of the same MPS Group as such MPS; and (iii) no
MPS described in paragraphs 93(a)(i) or (ii), or another member of the
same MPS Group as such MPS, has discretionary authority or control with
respect to the Client Plan assets involved in the Covered Transaction
or renders investment advice (within the meaning of 29 CFR 2510.3-
21(c)) with respect to such assets; however, the 10% Rule applies;
(b) The commercial paper must have a stated maturity date of nine
months or less from the date of issue, exclusive of days of grace, or
must be a renewal of an issue of commercial paper the maturity of which
is likewise limited;
(c) At the time it is acquired, the commercial paper must be ranked
in the highest rating category by at least one of the Rating
Organizations;
(d) If the seller or purchaser of the ABCP Conduit commercial paper
is an MPS and/or an MPS performs a continuing role with respect to the
Securities, secondary market purchases and sales must be pursuant to
the Three Quote Process, provided that, for purposes of this
transaction, firm quotes on comparable short-term money market
instruments rated in the same category may be used as quotes for
purposes of the Three Quote Process; and
(e) If an MPS performs a continuing role and there is a default,
the taking of or refraining from taking of any action by the
responsible BlackRock Manager which could have a material positive or
negative effect upon the MPS must be decided upon by the IM.
94. The Applicants further request that the Department confirm
that, for purposes of Section III.U. of the proposed exemption, no
BlackRock Entity is to be regarded as an affiliate of any MPS. The
Department concurs.
V. Purchase, Holding and Disposition by BlackRock Managers for Client
Plans of Shares of Exchange-Traded Open-End Investment Companies
Registered Under the 1940 Act (ETF) Managed by BlackRock Managers
95. The BlackRock Managers may serve as investment advisers to
ETFs. For example, the BlackRock Managers serve as the investment
adviser to the iShares[reg] family of ETFs, one of the nation's largest
ETF families. The Applicants represent that investment in ETFs is
becoming increasingly more popular. If Client Plans were unable to
invest in such ETFs, they would be unable to take advantage of both a
beneficial investment opportunity and an important tool with which to
manage liquidity.
96. The Applicants observe that BGI applied for and was granted an
individual prohibited transaction exemption, PTE 2008-1, 73 FR 3274
(January 17, 2008), which, among other relief, permits BGI (now, BTC)
and its investment advisory affiliates to acquire for ERISA and FERSA
clients, shares of ETFs managed by BTC or an affiliate of BTC. PTE
2008-1 was patterned on PTE 77-4,\44\ the prohibited transaction class
exemption for certain transactions between investment companies and
employee benefit plans. The Summary of Facts and Representations in the
related proposal of PTE 2008-12 \45\ describes in detail how trading in
ETFs takes place, including the process by which Creation Shares are
acquired.
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\44\ 42 FR 18732 (April 8, 1977).
\45\ See Proposed Exemption, Application No. D-11318, 72 FR
51668 (September 10, 2007).
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97. The Applicants represent that should BlackRock Managers acquire
or sell for Client Plans shares of ETFs managed by BTC or another
BlackRock Manager, no material benefit accrues to the BlackRock Manager
managing the ETF in question, as its assets under management are not
thereby increased, with the possible exception of when the purchase of
the ETF shares constitutes or results in new Creation Shares.
98. In order for relief under the proposed exemption to be
available for this transaction,\46\ the following conditions apply:
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\46\ The grant of the exemptive relief provided in Section
III.V. of the proposed exemption does not preclude compliance with
and use of PTE 77-4 or PTE 2008-1 granted to Barclays Global
Investors, N.A.
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[[Page 15077]]
(a)(i) The BlackRock Manager must purchase such ETF shares from or
through a person other than an MPS or a BlackRock Entity; and (ii) no
purchase shall be exempt under the proposed exemption if the BlackRock
Manager portfolio manager acting for the Client Plan knows (within the
meaning of the proposed exemption) or should know that the shares to be
acquired for Client Plans are Creation Shares, or that the purchase for
Client Plans will result in new Creation Shares; and
(b) Notwithstanding paragraph 98(a)(i), the Existing Directed
Brokerage and/or Wrap Fee Arrangement Exception applies. Additionally,
the ECO Function periodically monitors purchases of Securities to
ensure that the amount of BlackRock-managed ETF shares purchased for
Client Plans under this paragraph 98(b) is not disproportionate to the
amount of BlackRock-managed ETF shares purchased for Client Plans
pursuant to paragraph 98(a) under the brokerage arrangement in place as
of the date of the Acquisition.
W. Investment of Assets of MPS Plans in a BlackRock Bank-Maintained
Common or Collective Trust as of the Date of the Acquisition--Fees Paid
Outside the Trust
99. The Applicants represent that as of the Acquisition, one or
more MPS Plans was invested in one or more BTC bank collective trust
funds under an arrangement where the fees owed to BTC by these MPS
Plans are paid directly to BTC by the MPS Plans, not out of the assets
of the bank collective trust fund. These investments in the BTC funds,
at the time they were made, were selected by fiduciaries of the MPS
Plans as being in the interests of such Client Plans and their
participants and beneficiaries when no relationship existed between BGI
and the MPSs that might be viewed as affecting the best judgment of the
fiduciaries of the MPS Plans. All such fees are paid at BTC's standard
rates, or at negotiated rates discounted from BTC's standard rates. The
proposed exemption would permit continuation of these investments,
subject to certain conditions.
100. With respect to MPS Plans invested in Pooled Funds as of the
date of the Acquisition, which Pooled Funds are common or collective
trusts maintained by BTC, and in connection with which investments such
MPS Plans pay management fees directly to BlackRock Managers, relief
under the proposed exemption will be available until the earliest of
(a) termination of the investment in the Pooled Fund, (b) transition of
the fee arrangement to one under which the BlackRock Manager's fees are
paid from assets of the Pooled Fund or by the MPS Plan sponsor, or (c)
December 31, 2010 (Unwind Period 2) if the following conditions are
met:
(a) The fees paid by such MPS Plans to the BlackRock Managers
during Unwind Period 2 are neither more than reasonable compensation
nor significantly more than fees paid to the BlackRock Managers by
other, comparable Client Plans invested in such Pooled Funds which are
not MPS Plans;
(b) The MPS Plans must not pay to BlackRock Managers during Unwind
Period 2 any type of fee or other compensation that was not charged to
or otherwise borne by MPS Client Plans investors in the Pooled Fund as
of the date of the Acquisition; and
(c) During Unwind Period 2 the IM must review the investment by the
MPS Plans in the Pooled Fund; all fees paid by the affected MPS Plans
to BlackRock Managers must be disclosed to the IM; the IM must review
the offering documents for the Pooled Funds and any advisory or
management agreements with BlackRock Managers; and any material change
in the terms and conditions of the investment by the affected MPS Plans
in the Pooled Fund, including but not limited to changes to fees paid
to BlackRock Managers or the terms of the advisory or management
agreements with BlackRock Managers, must be promptly disclosed to the
IM and be subject to the IM's written approval. Further, during Unwind
Period 2, each such MPS Plan may terminate its investment in the Pooled
Fund upon no more than thirty (30) days notice and without incurring a
redemption fee paid to a BlackRock Manager.
X. Purchase, Holding and Disposition of BlackRock Equity Securities in
the Secondary Market by BlackRock Managers for an Index Account or
Fund, or a Model-Driven Account or Fund, Including Buy-Ups \47\
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\47\ ``Buy-Up'' means an initial acquisition of Securities
issued by BlackRock by a BlackRock Manager, if such acquisition
exceeds one percent (1%) of the aggregate daily trading volume for
such Security, for an Index Account or Fund, or a Model-Driven
Account or Fund which is necessary to bring the fund's or account's
holdings of such Securities either to its capitalization-weighted or
other specified composition in the relevant Index, as determined by
the organization maintaining such Index, or to its correct weighting
as determined by the Model. In non-Buy-up situations, the Applicants
believe that a BlackRock Manager should be able to purchase, hold
and dispose of BlackRock Securities in an Index/Model-Driven Account
or Fund for the purpose of maintaining the proper benchmark weight
without the need for additional exemptive relief. BlackRock requests
relief for non-Buy-Up situations subject only to Sections III.X.1.
and 2. of the proposed exemption for the avoidance of any issues
about the necessity for such relief in particular circumstances. The
Department is not opining on the need for such relief herein.
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101. BlackRock is an issuer of equity Securities with a significant
market capitalization. As a result, the Applicants represent that
common or preferred Securities issued by BlackRock may be included as a
component in an Index used by an Index Fund or a Model-Driven Fund
managed by a BlackRock Manager. Thus, the purchase of Securities issued
by BlackRock may be necessary for a portfolio to track the underlying
benchmark. If Client Plans were unable to invest in such Securities, it
could result in tracking error for applicable funds and accounts. It is
not clear to the Applicants that an exemption is necessary to purchase
or hold BlackRock Securities under such circumstances, but, given the
breadth of the exemption, the Applicants believe requesting the
certitude of exemptive relief on this point is appropriate.
102. In order for relief under the proposed exemption to be
available for this transaction, the following conditions apply:
(a) The acquisition, holding and disposition of the BlackRock
Securities must be for the sole purpose of maintaining quantitative
conformity with the weight of such Securities prescribed by the
relevant Index, for Index Accounts or Fund, or the weight of such
Securities prescribed by the relevant Model, for Model-Driven Accounts
or Funds, and such purchase may not exceed the purchase amount
necessary for such Model or quantitative conformity;
(b) Any acquisition of BlackRock Securities must not involve any
agreement, arrangement or understanding regarding the design or
operation of the account or fund acquiring the BlackRock Securities
which is intended to benefit BlackRock or any party in which BlackRock
may have an interest; and
(c) With respect to an acquisition of BlackRock Securities by such
an account or fund which constitutes a Buy-Up (see footnote 47):
(i) The acquisition must be made on a single trading day from or
through one broker-dealer, which broker-dealer is not an MPS or a
BlackRock Entity; provided, however, that if the volume condition in
paragraph 102(c)(iv) below cannot be satisfied in a single trading day,
the acquisition must be completed in as few trading days as possible in
compliance with such volume
[[Page 15078]]
limitation and such trades must be reviewed by the ECO and reported to
the IM;
(ii) Based upon the best available information, the acquisition
must not be the opening transaction of a trading day and must not be
made in the last half hour before the close of the trading day;
(iii) The price paid by the BlackRock Manager must not be higher
than the lowest current independent offer quotation, determined on the
basis of reasonable inquiry from broker-dealers who are not MPSs or
BlackRock Entities;
(iv) Aggregate daily purchases must not exceed fifteen percent
(15%) of aggregate average daily trading volume for the Security, as
determined by the greater of (A) the trading volume for the Security
occurring on the applicable Recognized Securities Exchange and/or
Automated Trading System on the date of the transactions, or (B) the
aggregate average daily trading volume for the Security occurring on
the applicable Recognized Securities Exchange and/or Automated Trading
System for the previous ten (10) trading days, both based on the best
information reasonably available at the time of the transaction. These
volume limitations must be applied on a portfolio manager by portfolio
manager basis unless purchases of BlackRock Securities are coordinated
by the portfolio managers or trading desks, in which case the
limitations are aggregated for the coordinating portfolio managers or
trading desks. Provided further, if BlackRock, without Client Plan
direction or consent, initiates a new Index Account or Fund, or Model-
Driven Account or Fund on its own accord, with BlackRock Securities
included therein, the volume restrictions for such new account or fund
must be determined by aggregating all portfolio managers purchasing for
such new account or fund. Cross trades of BlackRock Securities which
comply with an applicable statutory or administrative prohibited
transaction exemption are not included in the amount of aggregate daily
purchases to which the limitations of this paragraph apply; \48\
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\48\ Such trades are priced by reference to market prices, and,
thus, they generally do not affect market prices.
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(v) All purchases and sales of BlackRock Securities must occur
either (A) on a Recognized Securities Exchange, (B) through an
Automated Trading System operated by a broker-dealer that is not a
BlackRock Entity and is either registered under the 1934 Act, and
thereby subject to regulation by the Securities and Exchange
Commission, or subject to regulation and supervision by the Securities
and Futures Authority of the UK or another applicable regulatory
authority, which provides a mechanism for customer orders to be matched
on an anonymous basis without the participation of a broker-dealer, or
(C) through an Automated Trading System that is operated by a
Recognized Securities Exchange, pursuant to the applicable securities
laws, and provides a mechanism for customer orders to be matched on an
anonymous basis without the participation of a broker-dealer; and
(vi) The ECO must design acquisition procedures for BlackRock
Managers to follow in Buy-Ups, which the IM approves in advance of the
commencement of any Buy-Up, and the ECO Function must monitor BlackRock
Manager's compliance with such procedures.
Y. Acquisition by BlackRock Managers of Financial Guarantees,
Indemnities and Similar Protections for Client Plans From MPSs
103. The Applicants represent that BlackRock Managers in the past
have provided and in some cases currently have in place for Client
Plans financial guarantees, indemnification arrangements or similar
instruments providing protection to the Client Plans against various
possible losses or risks, such as an indemnification arrangement to
protect against the consequences of a counterparty default. On
occasion, these arrangements were and are provided to Client Plans by
means of a contract or similar funding arrangement with a third party,
and in some cases that third party can be an MPS. These guarantees,
indemnification arrangements and similar instruments do not exist as a
freestanding commitment constituting the sole relationship between
BlackRock and the Client Plan; instead, they are features or additions
to a more fundamental relationship, such as the retention of a
BlackRock Manager as a discretionary asset manager, or in connection
with a Client Plan investment in a commingled vehicle sponsored and/or
managed by a BlackRock Manager. The terms of these arrangements benefit
Client Plans, and independent Client Plan fiduciaries must agree to the
terms of the arrangement, including, if provided through a third party,
the identity of the third party.
104. In order for relief under the proposed exemption to be
available for this transaction, the following conditions apply: (a) The
terms of the arrangement (including the identity of the provider) must
be approved by a fiduciary of the Client Plan which is independent of
the MPS providing such protection or an MPS which is a member of the
same MPS Group as such MPS and of BlackRock; (b) the compensation owed
the MPS under the arrangement must be paid by a BlackRock Entity and
not paid out of the assets of the Client Plan; (c) in the event a
Client Plan or the ECO concludes an event has occurred which should
trigger the obligations of the MPS under the arrangement, and the MPS
disagrees to any material extent, the IM must determine the steps the
BlackRock Manager must take to protect the interests of the Client
Plan; and (d) the MPS providing the arrangement must be capable of
being sued in United States courts, has contractually agreed to be
subject to litigation in the United States with respect to any matter
relating to Section III.Y. of the proposed exemption, and must have
sufficient assets in the United States to honor its commitments under
the arrangement.
Affiliated Underwritings and Affiliated Servicing
105. Several of the Covered Transactions set forth above include in
their conditions requirements regarding affiliated underwriting and
affiliated servicing. Because the conditions associated therewith apply
to multiple Covered Transactions, the specific conditions for
Affiliated Underwritings and Affiliated Servicing are set forth in this
paragraph 105. In order for relief under the proposed exemption to be
available, the following conditions must be met for an Affiliated
Underwriting:
Affiliated Underwritings
(a) The Securities to be purchased must be either--
(i) Part of an issue registered under the 1933 Act. If the
Securities to be purchased are part of an issue that is exempt from
such registration requirement, such Securities must be:
(A) Issued or guaranteed by the United States or by any person
controlled or supervised by and acting as an instrumentality of the
United States pursuant to authority granted by the Congress of the
United States,
(B) Issued by a bank,
(C) Exempt from such registration requirement pursuant to a federal
statute other than the 1933 Act, or
(D) The subject of a distribution and are of a class which is
required to be registered under section 12 of the 1934 Act, and are
issued by an issuer that has been subject to the reporting requirements
of section 13 of the 1934 Act for a period of at least ninety (90)
[[Page 15079]]
days immediately preceding the sale of such Securities and that has
filed all reports required to be filed thereunder with the SEC during
the preceding twelve (12) months;
(ii) Part of an issue that is an Eligible Rule 144A Offering. Where
the Eligible Rule 144A Offering of the Securities is of equity
securities, the offering syndicate shall obtain a legal opinion
regarding the adequacy of the disclosure in the offering memorandum; or
(iii) Municipal bonds taxable by the United States, including Build
America Bonds created under section 54AA of the Code or successor
thereto, under which the United States pays a subsidy to the state or
local government issuer, but not including Building America Bonds which
provide a tax credit to investors.
(b) The Securities to be purchased must be purchased prior to the
end of the first day on which any sales are made, pursuant to that
offering, at a price that is not more than the price paid by each other
purchaser of the Securities in that offering or in any concurrent
offering of the Securities, except that--
(i) If such Securities are offered for subscription upon exercise
of rights, they may be purchased on or before the fourth day preceding
the day on which the rights offering terminates; or
(ii) If such Securities are debt Securities, they may be purchased
at a price that is not more than the price paid by each other purchaser
of the Securities in that offering or in any concurrent offering of the
Securities and may be purchased on a day subsequent to the end of the
first day on which any sales are made, pursuant to that offering,
provided that the interest rates, as of the date of such purchase, on
comparable debt Securities offered to the public subsequent to the end
of the first day on which any sales are made and prior to the purchase
date are less than the interest rate of the debt Securities being
purchased;
(c) The Securities to be purchased must be offered pursuant to an
underwriting or selling agreement under which the members of the
syndicate are committed to purchase all of the Securities being
offered, except if--
(i) Such Securities are purchased by others pursuant to a rights
offering; or
(ii) Such Securities are offered pursuant to an over-allotment
option;
(d) The issuer of the Securities to be purchased pursuant to the
proposed exemption must have been in continuous operation for not less
than three (3) years, including the operation of any predecessors,
unless the Securities to be purchased--
(i) Are non-convertible debt Securities rated in one of the four
highest rating categories by a Rating Organization; provided that none
of the Rating Organizations rates such Securities in a category lower
than the fourth highest rating category; or
(ii)(A) Are debt Securities issued or fully guaranteed by the
United States or by any person controlled or supervised by and acting
as an instrumentality of the United States pursuant to authority
granted by the Congress of the United States; or
(B) Are municipal bonds taxable by the United States, including
Build America Bonds created under section 54AA of the Code or successor
thereto, under which the United States pays a subsidy to the state or
local government issuer, but not including Building America Bonds which
provide a tax credit to investors; or
(iii) Are debt Securities which are fully guaranteed by a guarantor
that has been in continuous operation for not less than three (3)
years, including the operation of any predecessors, provided that such
guarantor has issued other Securities registered under the 1933 Act; or
if such guarantor has issued other Securities which are exempt from
such registration requirement, such Guarantor has been in continuous
operation for not less than three (3) years, including the operation of
any predecessors, and such guarantor is:
(A) A bank;
(B) An issuer of Securities which are exempt from such registration
requirement, pursuant to a Federal statute other than the 1933 Act; or
(C) An issuer of Securities that are the subject of a distribution
and are of a class which is required to be registered under section 12
of the 1934 Act, and are issued by an issuer that has been subject to
the reporting requirements of section 13 of the 1934 Act for a period
of at least ninety (90) days immediately preceding the sale of such
Securities and that has filed all reports required to be filed
hereunder with the SEC during the preceding twelve (12) months.
(e) The aggregate amount of Securities of an issue purchased,
pursuant to the proposed exemption, by the BlackRock Manager with: (i)
the assets of all Client Plans; and (ii) the assets, calculated on a
pro rata basis, of all Client Plans investing in Pooled Funds managed
by the BlackRock Manager; and (iii) the assets of plans to which the
BlackRock Asset Manager renders investment advice within the meaning of
29 CFR 2510.3-21(c) must not exceed:
(i) Ten percent (10%) of the total amount of the Securities being
offered in an issue, if such Securities are equity securities;
(ii) Thirty five percent (35%) of the total amount of the
Securities being offered in an issue, if such Securities are Asset-
Backed Securities rated in one of the three highest rating categories
by at least one of the Rating Organizations; provided that none of the
Rating Organizations rates such Securities in a category lower than the
third highest rating category;
(iii) Thirty five percent (35%) of the total amount of the
Securities being offered in an issue, if such Securities are debt
Securities rated in one of the four highest rating categories by at
least one of the Rating Organizations; provided that none of the Rating
Organizations rates such Securities in a category lower than the fourth
highest rating category; or
(iv) Twenty five percent (25%) of the total amount of the
Securities being offered in an issue, if such Securities are debt
Securities rated in the fifth or sixth highest rating categories by at
least one of the Rating Organizations; provided that none of the Rating
Organizations rates such Securities in a category lower than the sixth
highest rating category; and
(v) The assets of any single Client Plan (and the assets of any
Client Plans and any In-House Plans investing in Pooled Funds) must not
be used to purchase any Securities being offered, if such Securities
are debt Securities rated lower than the sixth highest rating category
by any of the Rating Organizations;
(vi) Notwithstanding the percentage of Securities of an issue
permitted to be acquired, as set forth in Sections IV.A.(5)(a)-(d) of
the proposed exemption, the amount of Securities in any issue (whether
equity or debt Securities or Asset-Backed Securities) purchased,
pursuant to the proposed exemption, by the BlackRock Manager on behalf
of any single Client Plan, either individually or through investment,
calculated on a pro rata basis, in a Pooled Fund may not exceed three
percent (3%) of the total amount of such Securities being offered in
such issue, provided that a Sub-Advised Pooled Fund (as described in
the proposed exemption) as a whole may purchase up to three percent
(3%) of an issue; and
(vii) If purchased in an Eligible Rule 144A Offering, the total
amount of the Securities being offered for purposes of determining the
percentages, described in Sections IV.A.(5)(a)-(d) and (f) of the
proposed exemption, is the total of:
(A) The principal amount of the offering of such class of
Securities sold
[[Page 15080]]
by underwriters or members of the selling syndicate to QIBs; plus
(B) The principal amount of the offering of such class of
Securities in any concurrent public offering.
(f) The aggregate amount to be paid by any single Client Plan in
purchasing any Securities which are the subject of the proposed
exemption, including any amounts paid by any Client Plan in purchasing
such Securities through a Pooled Fund, calculated on a pro rata basis,
must not exceed three percent (3%) of the fair market value of the net
assets of such Client Plan, as of the last day of the most recent
fiscal quarter of such Client Plan prior to such transaction, provided
that a Sub-Advised Pooled Fund as a whole may pay up to one percent
(1%) of fair market value of its net assets in purchasing such
Securities.
(g) The covered transactions must not be part of an agreement,
arrangement, or understanding designed to benefit any BlackRock Entity
or MPS.
(h) Each Client Plan must have total net assets with a value of at
least $50 million (the $50 Million Net Asset Requirement). For purposes
of engaging in covered transactions involving an Eligible Rule 144A
Offering, each Client Plan must have total net assets of at least $100
million in Securities of issuers that are not affiliated with such
Client Plan (the $100 Million Net Asset Requirement).
For purposes of a Pooled Fund engaging in an Affiliated
Underwriting, each Client Plan in such Pooled Fund other than a Sub-
Advised Pooled Fund must have total net assets with a value of at least
$50 million. Notwithstanding the foregoing, if each such Client Plan in
a Pooled Fund other than a Sub-Advised Pooled Fund does not have total
net assets with a value of at least $50 million, the $50 Million Net
Asset Requirement will be met if fifty percent (50%) or more of the
units of beneficial interest in such Pooled Fund are held by investors,
each of which has total net assets with a value of at least $50
million.
For purposes of a Pooled Fund engaging in an Affiliated
Underwriting involving an Eligible Rule 144A Offering, each Client Plan
in such Pooled Fund other than a Sub-Advised Pooled Fund must have
total net assets of at least $100 million in Securities of issuers that
are not affiliated with such Client Plan. Notwithstanding the
foregoing, if each such Client Plan in such Pooled Fund other than a
Sub-Advised Pooled Fund does not have total net assets of at least $100
million in Securities of issuers that are not affiliated with such
Client Plan, the $100 Million Net Asset Requirement will be met if
fifty percent (50%) or more of the units of beneficial interest in such
Pooled Fund are held by investors, each of which have total net assets
of at least $100 million in Securities of issuers that are not
affiliated with such investor, and the Pooled Fund itself qualifies as
a QIB.
For purposes of the net asset requirements described above, where a
group of Client Plans is maintained by a single employer or controlled
group of employers, as defined in ERISA section 407(d)(7), the $50
Million Net Asset Requirement (or in the case of an Eligible Rule 144A
Offering, the $100 Million Net Asset Requirement) may be met by
aggregating the assets of such Client Plans, if the assets of such
Client Plans are pooled for investment purposes in a single master
trust.
(i) No more than twenty percent (20%) of the assets of a Pooled
Fund, at the time of a covered transaction, may be comprised of assets
of In-House Plans for which the BlackRock Manager, or a BlackRock
Entity exercises investment discretion.
(j) The BlackRock Manager must be a QPAM, and, in addition to
satisfying the requirements for a QPAM under section VI(a) of PTE 84-
14, the BlackRock Manager must also have total client assets under its
management and control in excess of $5 billion, as of the last day of
its most recent fiscal year and shareholders' or partners' equity in
excess of $1 million.
(k) The applicable recordkeeping requirements are set forth in
Sections IV.A.11-12. of the proposed exemption.
Further, in order for relief under the proposed exemption to be
available, the following conditions must be met for an Affiliated
Servicing:
Affiliated Servicing
(a) The Securities must be CMBS that are rated in one of the three
highest rating categories by Rating Organizations; provided that none
of the Rating Organizations rates such Securities in a category lower
than the third highest rating category;
(b) The purchase of the CMBS must meet the conditions of an
applicable Underwriter Exemption;
(c)(i) The aggregate amount of CMBS of an issue purchased, pursuant
to the proposed exemption, by the BlackRock Manager with:
(A) The assets of all Client Plans;
(B) The assets, calculated on a pro rata basis, of all Client Plans
and In-House Plans investing in Pooled Funds managed by the Asset
Manager; and
(C) The assets of plans to which the Asset Manager renders
investment advice within the meaning of 29 CFR 2510.3-21(c) must not
exceed thirty five percent (35%) of the total amount of the CMBS being
offered in an issue;
(ii) Notwithstanding the percentage of CMBS of an issue permitted
to be acquired, as set forth in Section IV.B.3.(a) of the proposed
exemption, the amount of CMBS in any issue purchased, pursuant to the
proposed exemption, by the Asset Manager on behalf of any single Client
Plan, either individually or through investment, calculated on a pro
rata basis, in a Pooled Fund must not exceed three percent (3%) of the
total amount of such CMBS being offered in such issue; and
(iii) If purchased in an Eligible Rule 144A Offering, the total
amount of the CMBS being offered for purposes of determining the
percentages, described in Section IV.B.3(a) of the proposed exemption,
is the total of:
(A) The principal amount of the offering of such class of CMBS sold
by underwriters or members of the selling syndicate to QIBs; plus
(B) The principal amount of the offering of such class of CMBS in
any concurrent public offering;
(d) The aggregate amount to be paid by any single Client Plan in
purchasing any CMBS which are the subject of the proposed exemption,
including any amounts paid by any Client Plan in purchasing such CMBS
through a Pooled Fund, calculated on a pro rata basis, must not exceed
three percent (3%) of the fair market value of the net assets of such
Client Plan, as of the last day of the most recent fiscal quarter of
such Client Plan prior to such transaction;
(e) The Covered Transactions under Section IV.B. (Affiliated
Servicing) of the proposed exemption must not be part of an agreement,
arrangement, or understanding designed to benefit any MPS; and
(f) The requirements of Sections IV.A.8. through 12. of the
proposed exemption must be met.
Correction Procedures
106. The Applicants requested that isolated violations of the EPPs,
or isolated violations of the proposed exemption (the latter,
Violations) should not cause the entire proposed exemption to be
revoked (only a persistent pattern or practice of violations of the
EPPs or of the conditions might cause the proposed exemption to be
revoked). The Department concurs in this request.
107. The Department's concurrence is based in part on the unique
nature of the proposed exemption. The BlackRock ownership structure
outlined herein is
[[Page 15081]]
uniquely protective of BlackRock's independence from the MPSs, and the
structure of the proposed transaction is unique in its use of both an
extensive internal compliance regime and an extensive external
compliance regime.
108. Further, the size and scale of the proposed exemption provides
a unique ability to focus BlackRock on the financial implications of
noncompliance with the proposed exemption. The proposed correction
procedures give BlackRock only a single opportunity to report and
correct failures, thus focusing BlackRock on identifying and correcting
Violations within a specific window of opportunity and thereby
increasing compliance. Due to the size and scale, if BlackRock does not
identify Violations accurately, it risks the imposition of a
significant excise tax.
109. In such context, the Applicants and the Department concur that
compliance with the proposed exemption requires that all Violations
must still be completely corrected. No non-exempt prohibited
transaction will be deemed to occur, however, if the Violation is
completely corrected (within the meaning set out below) no later than
fourteen (14) business days following the date on which the ECO submits
the quarterly report to the IM for the quarter in which the Covered
Transaction first became a non-exempt prohibited transaction.
110. Under the proposed exemption, the following correction
procedures would apply at all times that the exemption remains in
effect:
(a)(i) The ECO shall monitor Covered Transactions and shall
determine whether a particular Covered Transaction constitutes a
Violation. The ECO shall notify the IM within five (5) business days
following the discovery of any Violation;
(ii) The ECO shall make the initial determination in writing of how
to correct a Violation, with such determination disclosed to the IM
within five (5) business days of initial written determination.
Following the initial written determination, the ECO must keep the IM
apprised on a current basis of the process of correction and must
consult with the IM regarding each Violation and the appropriate form
of correction. The ECO shall report the correction of the Violation to
the IM within five (5) business days following completion of the
correction. For purposes of Section V.A.2. of the proposed exemption,
``correction'' must be consistent with ERISA section 502(i) and Code
section 4975(f)(5);
(iii) The IM shall determine in writing whether it agrees that the
correction of a Violation by the ECO is adequate, and, if the IM does
not agree with the adequacy of the correction, the IM shall have the
authority to require additional corrective actions by BlackRock; and
(iv) The summary of Violations and corrections of Violations will
be in the IM's annual compliance report as described in Section II.E.12
of the proposed exemption; and
(b)(i) If a Covered Transaction which would otherwise constitute a
Violation is corrected under the ``Special Correction Procedure,'' such
Covered Transaction shall continue to be exempt under Section I of the
proposed exemption;
(ii)(A) The Special Correction Procedure mandates a complete
correction of the Violation no later than fourteen (14) business days
following the date on which the ECO submits the quarterly report to the
IM for the quarter in which the Covered Transaction first would become
a non-exempt prohibited transaction by reason of constituting a
Violation if not for Section V.B. of the proposed exemption;
(B) Solely for purposes of the Special Correction Procedure,
``correction'' of a Covered Transaction which would otherwise by a
Violation means either:
(a) Restoring the Client Plan to the position it would have been in
had the conditions of the exemption been complied with;
(b) Correction consistent with section ERISA section 502(i) and
Code section 4975(f)(5); or
(c) Correction consistent with the Voluntary Fiduciary Correction
Program; \49\ and
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\49\ 67 FR 15062 (March 28, 2002), as amended, 71 FR 20262
(April 19, 2006).
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(C) Other than with respect to the definition of ``correction,''
specified above, when utilizing the Special Correction Procedure the
ECO and the IM must comply with Section V.A. of the proposed exemption.
111. In summary, the Applicants represent that the exemption
proposed herein will satisfy the statutory criteria of ERISA section
408(a) and Code section 4975(c)(2) because:
(a) Administratively feasible. The Applicants believe that the
proposed exemption is administratively feasible. Most of the Covered
Transactions are the subject of existing statutory and/or
administrative exemptions. The conditions for relief for the Covered
Transaction have been modified to reflect, on the one hand, the
possible negative implication of the equity investments of the MPSs in
BlackRock, and on the other hand, the circumscribed ability of the MPSs
to exercise rights normally associated with such equity investments. In
addition, EPPs will have been developed with the cooperation and
approval of the IM; an ECO will be appointed to report on compliance
with the terms of the proposed exemption and the EPPs; and the IM will
review compliance reports, pass upon corrections of Violations, and if
necessary, contact the Department. Granting the proposed exemption
requires no additional monitoring by the Department.
(b) In the interest of plans and participants and beneficiaries.
The Applicants believe that the proposed exemption is in the interest
of plans and participants and beneficiaries because the proposed
exemption would allow BlackRock Managers to continue to engage in
Covered Transactions with major participants in the financial markets
which are necessary and beneficial to plans and their participants and
beneficiaries. While many Covered Transactions (although perhaps not
all) could be engaged in with parties other than an MPS, in numerous
cases such transactions would be quantitatively or qualitatively
inferior to the same transactions with an MPS.
(c) Protective of the rights of participants and beneficiaries of
such plans. Each of the Covered Transactions is protective of the
rights of participants and beneficiaries because specific conditions
have been tailored to their respective natures. More broadly, the
rights of participants and beneficiaries are protected by the general
conditions, modeled on the QPAM Exemption, that are applicable to all
Covered Transaction. The general protective conditions include
compensation restrictions, development of EPPs, and implementation of
EPPs with the cooperation and approval of the IM. Further, the ECO will
report on compliance with the proposed exemption and the EPPs, and the
IM will review compliance reports, pass upon corrections of Violations,
and if necessary, contact the Department.
PROPOSED EXEMPTION
Based on the facts and representations set forth in the
application, the Department is considering granting the following
exemption under the authority of ERISA section 408(a), Code section
4975(c)(2) and FERSA section 8477(c)(3), and in accordance with the
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,
32847, August 10, 1990), as follows:
SECTION I: COVERED TRANSACTIONS GENERALLY
If the proposed exemption is granted, for the period from December
1, 2009,
[[Page 15082]]
through the earlier of (i) the effective date of an individual
exemption granting permanent relief for the following transactions, or
(ii) May 31, 2011, the restrictions of ERISA sections 406(a)(1) and
406(b), FERSA sections 8477(c)(1) and (2), and the sanctions resulting
from the application of Code section 4975, by reason of Code section
4975(c)(1),\50\ shall not apply to the Covered Transactions set forth
in Section III and entered into on behalf of or with the assets of a
Client Plan; provided, that (x) the generally applicable conditions of
Section II of this exemption are satisfied, and, as applicable, the
transaction-specific conditions set forth below in Sections III and IV
of this exemption are satisfied, or (y) the Special Correction
Procedure set forth in Section V of this exemption is satisfied.
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\50\ For purposes of this proposed exemption, references to
ERISA section 406 should be read to refer as well to the
corresponding provisions of Code section 4975 and FERSA section
8477(c).
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SECTION II: GENERALLY APPLICABLE CONDITIONS
A. Compliance with the QPAM Exemption. The following conditions of
Part I of Prohibited Transaction Exemption 84-14, as amended (PTE 84-14
or the QPAM Exemption),\51\ must be satisfied with respect to each
Covered Transaction:
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\51\ 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 49305 (Aug.
23, 2005), and as amended, 75 FR 38837 (July 6, 2010).
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1. The BlackRock Manager engaging in the Covered Transaction is a
Qualified Professional Asset Manager;
2. Except as set forth in Section III of this exemption, at the
time of the Covered Transaction (as determined under Section VI(i) of
the QPAM Exemption) with or involving an MPS, such MPS, or its
affiliate (within the meaning of Section VI(c) of the QPAM
Exemption),\52\ does not have the authority to:
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\52\ Solely for purposes of this Section II.A.2., no BlackRock
Entity will be deemed to be an affiliate of an MPS. The Department
is not making herein a determination as to whether any BlackRock
Entity is an affiliate of an MPS under ERISA.
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(a) Appoint or terminate the BlackRock Manager as a manager of the
Client Plan assets involved in the Covered Transaction, or
(b) Negotiate on behalf of the Client Plan the terms of the
management agreement with the BlackRock Manager (including renewals or
modifications thereof) with respect to the Client Plan assets involved
in the Covered Transaction;
3. (a) Notwithstanding the foregoing, in the case of an investment
fund (as defined in Section VI(b) of the QPAM Exemption) in which two
or more unrelated Client Plans have an interest, a Covered Transaction
with an MPS will be deemed to satisfy the requirements of Section
II.A.2. of this exemption if the assets of a Client Plan on behalf of
which the MPS or its affiliate possesses the authority set forth in
Subsections 2(a) and/or (b) above, and which are managed by the
BlackRock Manager in the investment fund, when combined with the assets
of other Client Plans established or maintained by the same employer
(or an affiliate thereof described in section VI(c)(1) of the QPAM
Exemption) or by the same employee organization, on behalf of which the
same MPS possesses such authority and which are managed in the same
investment fund, represent less than ten percent (10%) of the assets of
the investment fund;
(b) For purposes of Section II.A.3.(a) of this exemption, and for
purposes of Sections III.I.6, L.3(b), M.2.(b) and U.1. of this
exemption, with respect to the assets of an MPS Plan invested in a
Pooled Fund as of the date of the Acquisition, which Pooled Fund is a
bank-maintained common or collective trust, such assets when aggregated
with the assets of all other MPS Plans of the same MPS Group and
invested in such Pooled Fund shall be deemed to constitute less than
ten percent (10%) of the assets of such Pooled Fund from the date of
the Acquisition through July 1, 2010 (the Unwind Period); provided,
that: \53\
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\53\ For purposes of this Section II.A.3.(b), the MPS Plans of
each of the MPS Groups (the PNC MPSs, the BOA MPSs, and the Barclays
MPSs) are separately aggregated (e.g., all MPS Plans of BOA MPSs are
aggregated together but are not aggregated with MPS Plans of
Barclays MPSs or PNC MPSs).
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(i) The fees paid by such MPS Plans to BlackRock Managers during
the Unwind Period are not more than reasonable compensation and are
substantially the same as fees paid to the same BlackRock Managers by
other, comparable Client Plans which are not MPS Plans, invested in
such Pooled Fund as of the date of the Acquisition;
(ii) Such MPS Plans do not pay to the same BlackRock Managers
during the Unwind Period any type of fee or other compensation that was
not charged to or otherwise borne by Client Plan investors, which are
not MPS Plans, in the Pooled Fund as of the date of the Acquisition;
(iii) During the Unwind Period, the IM reviews the investment by
the MPS Plans in the Pooled Fund; all fees paid by the MPS Plans to
BlackRock Managers are disclosed to the IM; the IM reviews the offering
documents for the Pooled Funds and any advisory or management
agreements with BlackRock Managers; and any material change in the
terms and conditions of the investment by the MPS Plans in the Pooled
Fund, including but not limited to fees paid to BlackRock Managers and
the terms of the advisory or management agreements with BlackRock
Managers, are promptly disclosed to the IM and are subject to the IM's
approval; and
(iv) During the Unwind Period, each MPS Plan may terminate its
investment in the Pooled Fund upon no more than thirty (30) days notice
and without incurring a redemption fee paid to a BlackRock Manager;
4. The terms of the Covered Transaction are negotiated on behalf of
the investment fund by, or under the authority and general direction
of, the BlackRock Manager and either the BlackRock Manager or (so long
as the BlackRock Manager retains full fiduciary responsibility with
respect to the Covered Transaction) a property manager acting in
accordance with written guidelines established and administered by the
BlackRock Manager, makes the decision on behalf of the investment fund
to enter into the Covered Transaction, provided that the Covered
Transaction is not part of an agreement, arrangement or understanding
designed to benefit the MPS;
5. The Covered Transaction is not entered into with an MPS which is
a party in interest or disqualified person with respect to any Client
Plan whose assets managed by the BlackRock Manager, when combined with
the assets of other Client Plans established or maintained by the same
employer (or affiliate thereof described in Section VI(c)(1) of the
QPAM Exemption) or by the same employee organization, and managed by
the BlackRock Manager, represent more than twenty percent (20%) of the
total client assets managed by the BlackRock Manager at the time of the
Covered Transaction;
6. At the time the Covered Transaction is entered into, and at the
time of any subsequent renewal or modification thereof that requires
the consent of the BlackRock Manager, the terms of the Covered
Transaction are at least as favorable to the investment fund as the
terms generally available in arm's length transactions between
unrelated parties; and
7. Neither the BlackRock Manager nor any affiliate thereof (as
defined in Section VI(d) of the QPAM
[[Page 15083]]
Exemption),\54\ nor any owner, direct or indirect, of a five percent
(5%) or more interest in the BlackRock Manager \55\ is a person who
within the ten years immediately preceding the Covered Transaction has
been either convicted or released from imprisonment, whichever is
later, as a result of: Any felony involving abuse or misuse of such
person's employee benefit plan position or employment, or position or
employment with a labor organization; any felony arising out of the
conduct of the business of a broker, dealer, investment adviser, bank,
insurance company or fiduciary; income tax evasion; any felony
involving the larceny, theft, robbery, extortion, forgery,
counterfeiting, fraudulent concealment, embezzlement, fraudulent
conversion, or misappropriation of funds or securities; conspiracy or
attempt to commit any such crimes or a crime in which any of the
foregoing crimes is an element; or any other crime described in ERISA
section 411. For purposes of this section, a person shall be deemed to
have been ``convicted'' from the date of the judgment of the trial
court, regardless of whether that judgment remains under appeal.
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\54\ For the avoidance of doubt, all MPSs are excluded from the
term ``affiliate'' for these purposes.
\55\ For the avoidance of doubt, all MPSs are excluded from the
term ``owner'' for these purposes.
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B. Compensation. None of the employees of a BlackRock Manager
receive any compensation that is based on any Covered Transaction
having taken place between Client Plans and any of the MPSs (as opposed
to with another institution that is not an MPS). The fact that a
specific Covered Transaction occurred with an MPS as opposed to a non-
MPS counterparty is ignored by BlackRock and BlackRock Managers for
compensation purposes. None of the employees of BlackRock or a
BlackRock Manager receive any compensation from BlackRock or a
BlackRock Manager which consists of equity Securities issued by an MPS,
which fluctuates in value based on changes in the value of equity
Securities issued by an MPS, or which is otherwise based on the
financial performance of an MPS independent of BlackRock's performance,
provided that this condition shall not fail to be met because the
compensation of an employee of a BlackRock Manager fluctuates with the
value of a broadly-based index which includes equity Securities issued
by an MPS.
C. Exemption Policies and Procedures. BlackRock adopts and
implements Exemption Policies and Procedures (EPPs) which address each
of the types of Covered Transactions and which are designed to achieve
the goals of: (1) Compliance with the terms of the exemption, (2)
ensuring BlackRock's decision-making with respect to the Covered
Transactions on behalf of Client Plans with MPSs or BlackRock Entities
is done in the interests of the Client Plans and their participants and
beneficiaries, and (3) to the extent possible, verifying that the terms
of such Covered Transactions are at least as favorable to the Client
Plans as the terms generally available in arm's length transactions
with unrelated parties. The EPPs are developed with the cooperation of
both the Exemption Compliance Officer (ECO) and the Independent Monitor
(IM), and such EPPs are subject to the approval of the IM. The EPPs
need not address transactions which are not within the definition of
the term Covered Transactions.
Transgressions of the EPPs which do not result in Violations
require correction only if the amount involved in the transgression and
the extent of deviation from the EPPs is material, taking into account
the amount of Client Plan assets affected by such transgressions (EPP
Corrections). The ECO will make a written determination as to whether
such transgressions require EPP Correction, and, if the ECO determines
an EPP Correction is required, the ECO will provide written notice to
the IM of the EPP Correction. The ECO will provide summaries for the IM
of any such EPP Corrections as part of the quarterly report referenced
in Section II.D.11.
D. Exemption Compliance Officer. BlackRock appoints an Exemption
Compliance Officer (ECO) with respect to the Covered Transactions. If
the ECO resigns or is removed, BlackRock shall appoint a successor ECO
within a reasonable period of time, not to exceed thirty (30) days,
which successor shall be subject to the affirmative written approval of
the IM. With respect to the ECO, the following conditions shall be met:
1. The ECO is a legal professional with at least ten years of
experience and extensive knowledge of the regulation of financial
services and products, including under ERISA and FERSA;
2. A committee made up exclusively of members of the Board who are
independent of BlackRock and the MPSs determines the ECO's compensation
package, with input from the general counsel of BlackRock; the ECO's
compensation is not set by BlackRock business unit heads, and there is
no direct or indirect input regarding the identity or compensation of
the ECO from any MPS;
3. The ECO's compensation is not based on performance of any
BlackRock Entity or MPS, although a portion of the ECO's compensation
may be provided in the form of BlackRock stock or stock equivalents;
4. The ECO can be terminated by BlackRock only with the approval of
the IM;
5. The EPPs prohibit any officer, director or employee of BlackRock
or any MPS or any person acting under such person's direction from
directly or indirectly taking any action to coerce, manipulate,
mislead, or fraudulently influence the ECO in the performance of his or
her duties;
6. The ECO is responsible for monitoring Covered Transactions and
shall determine whether Violations have occurred, and the appropriate
correction thereof, consistent with the requirements of Section V of
this exemption;
7. If the ECO determines a Violation has occurred, the ECO must
determine why it occurred and what steps should be taken to avoid such
a Violation in the future (e.g., additional training, additional
procedures, additional monitoring, or additional and/or changed
processes or systems);
8. The ECO is responsible for monitoring and overseeing the
implementation of the EPPs. The ECO may delegate such responsibilities
to the ECO Function, but the ECO will remain responsible for monitoring
and overseeing the ECO Function's implementation of the EPPs. When
appropriate, the ECO will recommend changes to the EPPs to BlackRock
and the IM. The ECO will consult with the IM regarding the need for,
timing, and form of EPP Corrections;
9. The ECO carries out the responsibilities required of the ECO
described in: (a) The definition of ``Index'' in this exemption and (b)
with respect to loans of Securities to an MPS in Section III.M. of this
exemption, and carries out such other responsibilities stipulated or
described in Section III of this exemption including supervision of the
ECO Function;
10. The ECO, with the assistance of the ECO Function, monitors
Covered Transactions and situations resulting from Covered Transactions
with or involving an MPS with respect to which, because of the
investment of the MPS in BlackRock, an action or inaction on the part
of a BlackRock Manager might be thought to be motivated by an interest
which may affect the exercise of such BlackRock Manager's best judgment
as a fiduciary. If a situation is
[[Page 15084]]
identified by the ECO which poses the potential for a conflict, as
specified in Section III, the ECO shall consult with the IM, or refer
decision-making to the discretion of the IM;
11. The ECO provides a quarterly report \56\ to the IM summarizing
the material activities of the ECO for the preceding quarter and
setting forth any Violations discovered during the quarter and actions
taken to correct such Violations. With respect to Violations, the ECO
report details changes to process put in place to guard against a
substantially similar Violation occurring again, and recommendations
for additional training, additional procedures, additional monitoring,
or additional and/or changed processes or systems or training changes
and BlackRock management's actions on such recommendations. In
connection with providing the quarterly report for the second quarter
and fourth quarter of each year, upon the request of the IM, the ECO
and the IM shall meet in person to review the content of the report.
Other members of the ECO Function may attend such meetings at the
request of either the ECO or the IM;
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\56\ The first quarterly report will cover a 4-month period
ending March 31, 2010.
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12. In each quarterly report, the ECO certifies in writing to his
or her knowledge that (a) the quarterly report is accurate; (b)
BlackRock's compliance program is working in a manner which is
reasonably designed to prevent Violations; (c) any Violations
discovered during the quarter and the related corrections taken to date
have been identified in the report; and (d) BlackRock has complied with
the EPPs in all material respects;
13. No less frequently than annually, the ECO certifies to the IM
as to whether BlackRock has provided the ECO with adequate resources,
including, but not limited to, adequate staffing of the ECO Function,
and, in connection with the quarterly report for the fourth quarter of
each year, the ECO shall identify to the IM those BlackRock Managers
that relied upon this exemption during the prior year and those that he
reasonably anticipates relying on this exemption during the current
year; and
14. The ECO provides any further information regarding Covered
Transactions reasonably requested by the IM.
E. Independent Monitor. BlackRock retains an Independent Monitor
(IM) with respect to the Covered Transactions. If the IM resigns or is
removed, BlackRock shall appoint a successor IM within a reasonable
period of time, not to exceed thirty (30) days. The IM:
1. Agrees in writing to serve as IM, and he or she is independent
within meaning of Section VI (OO);
2. Approves the ECO selected by BlackRock, and as part of the
approval process and annually thereafter approves in general terms the
reasonableness of the ECO's compensation, taking into account such
information as the IM may request of BlackRock and which BlackRock must
supply, and approves any termination of the ECO by BlackRock;
3. Assists in the development of, and the granting of written
approval of, the EPPs and any material alterations of the EPPs by
determining that they are reasonably designed to achieve the goals of
(a) compliance with the terms of the exemption, (b) ensuring
BlackRock's decision-making with respect to Covered Transactions on
behalf of Client Plans with MPSs or BlackRock Entities is done in the
interests of the Client Plans and their respective participants and
beneficiaries and, (c) requiring, to the extent possible, verification
that the terms of such Covered Transactions are at least as favorable
to the Client Plans as the terms generally available in comparable
arm's length transactions with unrelated parties;
4. Consults with the ECO regarding the need for, timing and form of
any EPP Corrections. The IM has the responsibilities with respect to
corrections of Violations, as set forth in Section V of this Exemption.
In response to EPP Corrections or Violations, the IM considers whether,
and must have the authority, to require further sampling, testing or
corrective action if necessary;
5. Exercises discretion for Client Plans in situations specified in
Section III of this exemption where BlackRock Managers may be thought
to have conflicts;
6. Performs certain monitoring functions described in Section III,
and carries out the responsibilities required of the IM, as set forth
in the definition of ``Index'' in this exemption, and with respect to
loans of Securities to an MPS as set forth in Section III.M. of this
exemption, and carries out such other responsibilities stipulated in
Section III of this exemption;
7. Reviews the quarterly reports of the ECO, obtains and reviews
representative samples of the data underlying the quarterly reports of
the ECO, and, if the IM deems it appropriate, obtains additional
factual information on either an ad hoc basis or on a systematic basis;
8. Reviews the certifications of the ECO as to whether (a) the
quarterly report is accurate; (b) BlackRock's compliance program is
working in a manner which is reasonably designed to prevent Violations;
(c) any Violations discovered during the quarter and the related
corrections taken to date have been identified in the report; (d)
BlackRock has complied with the EPPs in all material respects; and (e)
BlackRock has provided the ECO with adequate resources, including, but
not limited to, adequate staffing of the ECO Function;
9. Determines, on the basis of the information supplied to the IM
by BlackRock and the ECO, whether there has occurred a pattern or
practice of insufficient diligence in adhering to the EPPs and/or the
conditions of the exemption, and if such a determination is made,
reports the same to the Department, and informs BlackRock and the ECO
of any such report;
10. Determines whether the purchases of equity Securities issued by
an MPS on behalf of Client Plans that are Other Accounts or Funds by a
BlackRock Manager has had a positive material impact on the market
price for such Securities, notwithstanding any volume limitations
imposed by Section III.S. of the exemption and/or imposed by the IM
with respect to such equity Securities. The IM makes this determination
based upon its review of the relevant monthly reports required by the
exemption with respect to such Covered Transactions provided by the ECO
and publicly available information materially related to the trading of
the Securities of an MPS on its primary listing exchange (or market);
11. Issues an annual compliance report,\57\ to be timely delivered
to (i) the Chairman of the Board, (ii) the Chief Executive Officer of
BlackRock and (iii) the General Counsel of BlackRock. The annual
compliance report shall be based on a review of the EPPs, the quarterly
reports provided by the ECO, any transactions reviewed by the IM as
well as any additional information the IM requests from BlackRock, and
certifying to each of the following (or describing any exceptions
thereto) that:
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\57\ The first annual compliance report will cover the 13-month
period ending December 31, 2010.
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(a) The EPPs are reasonably designed to achieve the goals of (i)
compliance with the terms of the exemption, (ii) ensuring BlackRock's
decision-making with respect to Covered Transactions on behalf of
Client Plans with MPSs or BlackRock Entities is done in the interests
of the Client Plans and the respective participants and
[[Page 15085]]
beneficiaries, and (iii) requiring to the extent possible, verification
that the terms of any Covered Transaction are at least as favorable to
Client Plans as the terms generally available in comparable arm's
length transactions with unrelated parties;
(b) The EPPs and the other terms of the exemption were complied
with, with any material exceptions duly noted;
(c) The IM has made the determination referred to in Section
II.E.9. and the results of that determination;
(d) BlackRock has provided the ECO with adequate resources,
including but not limited to adequate staffing of the ECO Function; and
(e) The compensation package for the ECO for the prior year is
reasonable;
12. The annual compliance report of the IM, as described in Section
II.E.11., shall contain a summary of Violations, any corrections of
Violations required by the IM and/or the ECO at any time during the
prior year. In addition, the IM further certifies that BlackRock
correctly implemented the prescribed corrections, based in part on
certification from the ECO; and
13. The annual compliance report of the IM shall also be timely
delivered by the IM to the chief executive officer, the general counsel
and the members of the boards of directors of each of the BlackRock
Managers identified to the IM by the ECO as having relied upon this
exemption during the prior year and those that the ECO reasonably
anticipates will be relying on this exemption during the current year.
The copies of the compliance report described in this Section II.E.13.
shall be accompanied by a cover letter from the IM calling the
attention of the recipients to any violations, material exceptions to
compliance with the EPPs, or other shortfalls in compliance with the
exemption to assist such officers and directors in carrying out their
respective responsibilities.
F. Special Notice Provisions. A Special Notice containing (i) a
notice of all of the conditions for relief under Sections III.C., E.,
F., G., Q., R., S. and V. and (ii) a copy of the Notice to Interested
Parties must be provided to affected Client Plans in writing (which may
be provided by U.S. mail or electronically, including by e-mail or use
of a centralized electronic mailbox, so long as such electronic
communication is reasonably calculated to result in the applicable
Client Plan's receipt) as soon as practical, but no later than fifteen
(15) days, following the date that the Notice to Interested Persons is
provided to Client Plans generally, through publication in the Federal
Register. As soon as practical following the Special Notice, a Client
Plan fiduciary independent of any BlackRock Entity must be provided any
additional material information regarding Covered Transactions
described in Sections III.C., E., F., G., Q., R., S. and V. by the
applicable BlackRock Manager on reasonable request; provided, that,
solely for purposes of this subsection, the fiduciary of an In-House
Plan is not required to be independent of any BlackRock Entity.
SECTION III: COVERED TRANSACTIONS
A. Continuing Transactions. Relief under Section I of this
exemption is available for Type B Covered Transactions and Type C
Covered Transactions and the unwind, settlement or other termination
thereof provided that:
1. A list of all Type B Covered Transactions and all Type C Covered
Transactions (the B and C List) as of the date of the Acquisition is
prepared by BlackRock and provided to the ECO.
2. Any discretionary act by a BlackRock Manager with respect to a
transaction on the B and C List is approved in advance in writing by
the ECO. Such approval is required for, but not limited to, sales and
other transfers to a third party, redemptions, the exercise of options,
and the declaration of default or other credit impairment-driven
decisions. The ECO must determine that the terms of such discretionary
act are in the interests of the affected Client Plans.
3. The ECO Function periodically monitors outstanding transactions
on the B and C List to inquire if an affirmative discretionary act,
such as a credit driven action, would be appropriate. If the ECO makes
such a determination, the ECO must direct the action be taken and must
approve the terms thereof as being in the interests of the affected
Client Plans.
4. The ECO Function sends to the IM an updated copy of the B and C
List as of the end of each fiscal quarter summarizing the Type B
Covered Transactions and Type C Covered Transactions remaining at the
end of the quarter and any discretionary actions taken during the
quarter by BlackRock Managers with respect to such transactions.
5. Upon the determination by the IM that an action taken with
respect to a Type B Covered Transactions or Type C Covered Transaction
was inappropriate or that the compensation the Client Plans received
was inadequate, or that an action should have been taken but was not,
the Client Plans are made whole by BlackRock.
B. Purchases and Holdings by BlackRock Managers of Fixed Income
Obligations Issued by an MPS in an Underwriting on Behalf of Client
Plans Invested in an Index Account or Fund, or in a Model-Driven
Account or Fund. Relief under Section I of this exemption is available
for a purchase and holding by BlackRock Managers of Fixed Income
Obligations issued by an MPS in an underwriting on behalf of Client
Plans for an Index Account or Fund, or a Model-Driven Account or Fund,
provided that:
1. Such purchase is for the sole purpose of maintaining
quantitative conformity with the weight of such Securities prescribed
by the relevant Index, for Index Accounts or Funds, or the weight of
such Securities prescribed by the relevant Model, for Model-Driven
Accounts or Funds; and such purchase may not exceed the purchase amount
necessary for such Model or quantitative conformity;
2. Such purchase is not made from any MPS;
3. No BlackRock Entity is in the selling syndicate;
4. After purchase, the responsible BlackRock Manager notifies the
ECO if circumstances arise in which an action or inaction on the part
of the BlackRock Manager regarding an MPS Fixed Income Obligation so
acquired might be thought to be motivated by an interest which may
affect the exercise of such BlackRock Manager's best judgment as a
fiduciary, and complies with decisions of the ECO regarding the taking,
or the refraining from taking, of actions in such circumstances; and
5. After purchase, any decision regarding conversion of an MPS
Fixed Income Obligation into equity in the MPS is made by the IM.
C. Purchase and Holding by BlackRock Managers of Fixed Income
Obligations Issued by an MPS in an Underwriting on Behalf of Client
Plans Invested in an Other Account or Fund. Relief under Section I of
this exemption is available for a purchase and holding by BlackRock
Managers of Fixed Income Obligations issued by an MPS in an
underwriting on behalf of Client Plans invested in an Other Account or
Fund provided that:
1. The conditions of Section IV.A. of this exemption are satisfied,
except that for purposes of Section IV.A.4.(a) and Section IV.A.5.(c),
the MPS-issued Fixed Income Obligations at the time of purchase must be
rated in one of the three highest rating categories by a Rating
Organization and none of the Rating Organizations may rate the Fixed
[[Page 15086]]
Income Obligations lower than in the third highest rating category;
2. Such purchase is not made from an MPS;
3. No BlackRock Entity is in the selling syndicate;
4. After purchase, the responsible BlackRock Manager notifies the
ECO if circumstances arise in which an action or inaction on the part
of the BlackRock Manager regarding an MPS Fixed Income Obligation so
acquired might be thought to be motivated by an interest which may
affect the exercise of such BlackRock Manager's best judgment as a
fiduciary, and complies with decisions of the ECO regarding the taking,
or the refraining from taking, of actions in such circumstances;
5. After purchase, any decision regarding conversion of an MPS
Fixed Income Obligation into equity in the MPS is made by the IM; and
6. Special Notice of all of the foregoing conditions for relief
under this Section III.C. must be provided in accordance with the terms
of Section II.F.
D. Certain Transactions in the Secondary Market by BlackRock
Managers of Fixed Income Obligations Including Fixed Income Obligations
Issued by or Traded With an MPS. Relief under Section I of this
exemption is available for a purchase or sale in the secondary market
or the holding by BlackRock Managers on behalf of Client Plans of (i)
Fixed Income Obligations issued by an MPS or (ii) Fixed Income
Obligations issued by a third party but purchased or sold to an MPS,
provided that:
1. The Fixed Income Obligations are purchased from or sold to an
MPS as a result of the Three Quote Process.
2. With respect to Fixed Income Obligations that are issued by an
MPS and are purchased and held by a BlackRock Manager for a Client
Plan--
(a) The purchase of the Fixed Income Obligation issued by an MPS is
not made from the issuing MPS;
(b) After purchase, the responsible BlackRock Manager notifies the
ECO if circumstances arise in which an action or inaction on the part
of the BlackRock Manager regarding an MPS Fixed Income Obligation so
acquired might be thought to be motivated by an interest which may
affect the exercise of such BlackRock Manager's best judgment as a
fiduciary, and complies with the decisions of the ECO regarding the
taking, or the refraining from taking, of actions in such
circumstances;
(c) After purchase, any decision regarding conversion of an MPS
Fixed Income Obligation into equity in the MPS is made by the IM; and
(d) If purchased for an Index Account or Fund, or a Model-Driven
Account or Fund, such purchase is for the sole purpose of maintaining
quantitative conformity with the weight of such Securities prescribed
by the relevant Index, for Index Accounts or Funds, or the weight of
such Securities prescribed by the relevant Model, for Model-Driven
Accounts or Funds and such purchase may not exceed the purchase amount
necessary for such Model or quantitative conformity.
3. With respect to Fixed Income Obligations (whether or not issued
by an MPS) held by a BlackRock Manager for a Client Plan under which an
MPS has an ongoing function, such as servicing of collateral for asset-
backed debt, or the potential for liability, such as under
representations or warranties made by an MPS with respect to collateral
for such asset-backed debt which the MPS originated, the taking of or
refraining from taking any action by the responsible BlackRock Manager
which could have a material positive or negative effect upon the MPS is
decided upon by the ECO.
4. For purposes of this Section III.D., Asset-Backed Securities are
not Fixed Income Obligations.
E. Purchase in an Underwriting and Holding by BlackRock Managers of
Fixed Income Obligations Issued by a Third Party when an MPS is
Underwriter, in Either a Manager or a Member Capacity, or Debt Trustee.
Relief under Section I of this exemption is available for the purchase
and holding by BlackRock Managers of Fixed Income Obligations issued by
third parties in an underwriting when an MPS is an underwriter, in
either a manager or a member capacity, or debt trustee under the Fixed
Income Obligation, provided that:
1. The conditions of Section IV.A. are satisfied;
2. Such purchase is not made from an MPS;
3. No BlackRock Entity is in the selling syndicate; and
4. With respect to Fixed Income Obligations under which an MPS has
either an ongoing function, such as debt trustee, servicer of
collateral for asset-backed debt, or the potential for liability, such
as under representations or warranties made by an MPS with respect to
collateral for such asset-backed debt which the MPS originated, the
taking of or refraining from taking any action by the responsible
BlackRock Manager which could have a material positive or negative
effect upon the MPS is decided upon by the ECO.
5. For purposes of this Section III.E., Asset-Backed Securities are
not Fixed Income Obligations.
6. Special Notice of all of the foregoing conditions for relief
under this Section III.E. must be provided in accordance with the terms
of Section II.F.
F. Purchase in an Underwriting and Holding by BlackRock Managers of
Asset-Backed Securities, When an MPS is an Underwriter, in the Capacity
as Either a Manager or a Member of the Selling Syndicate, Trustee, or,
in the Case of Asset-Backed Securities Which Are CMBS, Servicer. Relief
under Section I of this exemption is available for the purchase and
holding by BlackRock Managers of Asset-Backed Securities issued in an
underwriting where an MPS is (i) an underwriter, in the capacity as
either a manager or a member of the selling syndicate, (ii) trustee, or
(iii), solely in the case of Asset-Backed Securities which are CMBS,
servicer, when the MPS serves solely as servicer and not as an
underwriter or trustee while being such servicer, of securitized
obligations, provided that:
1. The conditions of Section IV.A. are satisfied, except that (a)
for purposes of Section IV.A.4.(a), the Asset-Backed Securities at the
time of purchase must be rated in one of the three highest rating
categories by a Rating Organization and none of the Rating
Organizations may rate the Asset-Backed Securities lower than the third
highest rating category and (b) in the case of Asset-Backed Securities
which are CMBS and for which the MPS is servicer, the conditions of
Section IV.B. are satisfied instead of the conditions of Section IV.A.;
2. Such purchase is not made from an MPS;
3. No BlackRock Entity is in the selling syndicate;
4. In the case of Asset-Backed Securities with respect to which an
MPS has either an ongoing function, such as trustee, servicer of
collateral for CMBS, or the potential for liability, such as under
representations or warranties made by an MPS with respect to collateral
for CMBS which collateral the MPS originated, the taking of or
refraining from taking of any action by a responsible BlackRock Manager
which could have a material positive or negative effect upon the MPS is
decided upon by the ECO;
5. The purchase meets the conditions of an applicable Underwriter
Exemption; and
6. Special Notice of all of the foregoing conditions for relief
under this Section III.F. must be provided in
[[Page 15087]]
accordance with the terms of Section II.F.
G. Purchase and Holding by BlackRock Managers of Equity Securities
Issued by an Entity Which is not an MPS and is Not a BlackRock Entity,
in an Underwriting when an MPS is an Underwriter, in Either a Manager
or a Member Capacity. Relief under Section I of this exemption is
available for the purchase and holding by BlackRock Managers of Equity
Securities issued by an entity which is not an MPS and which is not a
BlackRock Entity in an underwriting when an MPS is an underwriter, in
either a manager or a member capacity, provided that:
1. The conditions of Section IV.A. are satisfied;
2. Such purchase is not made from an MPS;
3. No BlackRock Entity is in the selling syndicate;
4. The Securities are not Asset-Backed Securities; and
5. Special Notice of all of the foregoing conditions for relief
under this Section III.G. must be provided in accordance with the terms
of Section II.F.
H. Purchase and Sale by BlackRock Managers of Asset-Backed
Securities in the Secondary Market, from or to an MPS, and/or when an
MPS is Sponsor, Servicer, Originator, Swap Counterparty, Liquidity
Provider, Trustee or Insurer, and the Holding Thereof. Relief under
Section I of this exemption is available for a sale of Asset-Backed
Securities by a BlackRock Manager to an MPS, or the purchase of Asset-
Backed Securities by BlackRock Managers from an MPS and the holding
thereof, and/or any such purchase or sale in the secondary market or
holding when an MPS is a sponsor, a servicer, an originator, a swap
counterparty, a liquidity provider, a trustee or an insurer, provided
that:
1. If the Asset-Backed Securities are purchased from or sold to an
MPS, the purchase or sale is as a result of the Three Quote Process.
2. Regardless of from whom the BlackRock Manager purchases the
Asset-Backed Securities, the purchase and holding of the Asset-Backed
Security otherwise meets the conditions of an applicable Underwriter
Exemption.
3. Regardless of from whom the BlackRock Manager purchased the
Asset-Backed Securities, if an MPS is, with respect to such Asset-
Backed Securities, a sponsor, servicer, originator, swap counterparty,
liquidity provider, insurer or trustee, as those terms are utilized or
defined in the Underwriter Exemptions, and circumstances arise in which
the taking of or refraining from taking of any action by the
responsible BlackRock Manager could have a material positive or
negative effect upon the MPS, the taking of or refraining from taking
of any such action is decided upon by the ECO.
I. Repurchase Agreements when MPS is the Seller. Section I of this
exemption applies to an investment by a BlackRock Manager of Client
Plan assets which involves the purchase or other acquisition, holding,
sale, exchange or redemption by or on behalf of a Client Plan of a
repurchase agreement (or Securities or other instruments under cover of
a repurchase agreement) in which the seller of the underlying
Securities or other instruments is an MPS which is a bank supervised by
the United States or a State, a broker-dealer registered under the 1934
Act, or a dealer who makes primary markets in Securities of the United
States government or any agency thereof, or in banker's acceptances,
and reports daily to the Federal Reserve Bank of New York its positions
with respect to these obligations, provided that each of the following
conditions are satisfied:
1. The repurchase agreement is embodied in, or is entered into
pursuant to a written agreement. Such written agreement must be a
standardized industry form; provided, that with the approval of the ECO
on or about the date of the Acquisition, written agreements with an MPS
that were in effect as of the date of the Acquisition may continue to
be used until there is a material modification of the same, at which
time standardized industry forms must be adopted;
2. The repurchase agreement has a term of one year or less;
3. The Client Plan receives interest no less than that which it
would receive in a comparable arm's length transaction with an
unrelated party;
4. The Client Plan receives Securities, banker's acceptances,
commercial paper or certificates of deposit having a market value equal
to not less than one hundred percent (100%) of the purchase price paid
by the Client Plan;
5. Upon expiration of the repurchase agreement and return of the
Securities or other instruments to the seller, the seller transfers to
the Client Plan an amount equal to the purchase price plus the
appropriate interest;
6. Neither the MPS seller nor any MPS which is a member of the same
MPS Group has discretionary authority or control with respect to the
investment of the Client Plan assets involved in the transaction or
renders investment advice (within the meaning of 29 CFR 2510.3-21(c))
with respect to such assets. This Section III.I.6. shall be deemed
satisfied notwithstanding the investment of assets of an MPS Plan of
the MPS which is the seller under such repurchase agreement in a Pooled
Fund as of the date of the Acquisition, which Pooled Fund is a bank-
maintained common or collective trust, provided that such assets, when
aggregated with the assets of all other MPS Plans of the same MPS Group
as that of the MPS seller and invested in such Pooled Fund, at all
times since the date of the Acquisition, constitute or are deemed
pursuant to Section II.A.3.(b) to constitute less than ten percent
(10%) of the assets of such Pooled Fund;
7. The Securities, banker's acceptances, commercial paper or
certificates of deposit received by the Client Plan:
(a) Could be acquired directly by the Client Plan in a transaction
not covered by this Section III.I. without violating ERISA sections
406(a)(1)(E), 406(a)(2) or 407(a); and
(b) If the Securities are subject to the provisions of the 1933
Act, they are obligations that are not ``restricted securities'' within
the meaning of Rule 144 under the 1933 Act; provided, that, such
restricted securities are permitted until July 31, 2010.
8. If the market value of the underlying Securities or other
instruments falls below the purchase price at any time during the term
of the agreement, the Client Plan may, under the written agreement
required by Section III.I.1., require the MPS seller to deliver, by the
close of business on the following business day (as such term is
defined for purposes of the relevant written agreement), additional
Securities or other instruments the market value of which, together
with the market value of Securities or other instruments previously
delivered or sold to the Client Plan under the repurchase agreement,
equals at least one hundred percent (100%) of the purchase price paid
by the Client Plan.
9. If the MPS seller does not deliver additional Securities or
other instruments as required above, the Client Plan may terminate the
agreement, and, if upon termination or expiration of the agreement, the
amount owing is not paid to the Client Plan, the Client Plan may sell
the Securities or other instruments and apply the proceeds against the
obligations of the MPS seller under the agreement, and against any
expenses associated with the sale.
10. The MPS seller agrees to furnish the Client Plan with the most
recent available audited statement of its
[[Page 15088]]
financial condition as well as its most recent available unaudited
statement, agrees to furnish additional audited and unaudited
statements of its financial condition as they are issued and either:
(a) Agrees that each repurchase agreement transaction pursuant to the
agreement shall constitute a representation by the MPS seller that
there has been no material adverse change in its financial condition
since the date of the last statement furnished that has not been
disclosed to the Client Plan with whom such written agreement is made;
or (b) prior to each repurchase agreement transaction, the MPS seller
represents that, as of the time the transaction is negotiated, there
has been no material adverse change in its financial condition since
the date of the last statement furnished that has not been disclosed to
the Client Plan with whom such written agreement is made.
11. In the event of termination and sale as described in Section
III.I.9., the MPS seller pays to the Client Plan the amount of any
remaining obligations and expenses not covered by the sale of the
Securities or other instruments, plus interest at a reasonable rate.
12. If an MPS seller involved in a repurchase agreement covered by
this exemption fails to comply with any condition of this exemption in
the course of engaging in the repurchase agreement, the BlackRock
Manager who caused the plan to engage in such repurchase agreement
shall not be deemed to have caused the plan to engage in a transaction
prohibited by ERISA sections 406(a)(1)(A) through (D) or ERISA section
406(b), Code section 4975, or FERSA section 8477(c) solely by reason of
the MPS seller's failure to comply with the conditions of the
exemption.
13. In the event of any dispute between a BlackRock Manager and an
MPS seller involving a Covered Transaction under this Section III.I.,
the IM has the responsibility to decide whether, and if so how,
BlackRock is to pursue relief on behalf of the Client Plan(s) against
the MPS Seller.
14. At time of entry into or renewal of each Covered Transaction
under this Section III.I., including both term repurchase transactions
and daily renewals for ``open'' or ``overnight'' transactions, either
(a) each Covered Transaction under this Section III.I., is as a result
of the Three Quote Process, or, (b) the BlackRock Manager determines
that the yield on the proposed transaction, or the renewal thereof, is
at least as favorable to the Client Plans as the yield of the Client
Plan on two (2) other available transactions which are comparable in
terms of size, collateral type, credit quality of the counterparty,
term and rate. The methodology employed for purposes of the comparison
in (b) above must (c) be approved in advance by the ECO Function and
(d), to the extent possible, refer to objective external data points,
such as the Eurodollar overnight time deposit bid rate, the rate for
repurchase agreements with U.S. government Securities, or rates for
commercial paper issuances or agency discount note issuances sourced
from Bloomberg, or another third party pricing service or market data
provider (which providers may use different terminology to refer to
these same external data points). The applicable BlackRock Manager must
record a description of the comparable transactions, if reliance is
placed upon same, and such data must be periodically reviewed by the
ECO Function. The procedures described in this Section III.I.14. must
be designed to ensure that BlackRock Managers determine to only enter
into Covered Transactions with MPS sellers which are in the interests
of Plan Clients, and such procedures must be reviewed and may be
commented on by the IM.
J. Responding to Tender Offers and Exchange Offers Solicited by an
MPS. Relief under Section I of this exemption is available for
participation by BlackRock Managers on behalf of Client Plans in tender
offers or exchange offers or similar transactions where an MPS acts as
agent for the entity (which entity may not be an MPS) making the offer,
provided that:
1. The Client Plan pays no fees to the MPS in connection with this
Covered Transaction;
2. The BlackRock Manager submits to the ECO in advance of
participation a written explanation of the reasons for such
participation; and
3. The ECO Function determines that the reasons for participation
by the BlackRock Manager in the Covered Transaction are appropriate
from the vantage point of the Client Plans. Effective as of October 1,
2010, the ECO Function must affirmatively make this determination in
writing prior to the BlackRock Manager participating in the Covered
Transactions under this Section III.J.
K. Purchase in Underwritings of Securities Issued by an Entity
Which is not an MPS when the Proceeds are Used to Repay a Debt to an
MPS. Relief under Section I of this exemption is available for the
purchase by BlackRock Managers of Securities in underwritings issued by
an entity which is not an MPS, but where the proceeds of the offering
are used to repay a debt owed to an MPS, and the payment of such
proceeds to the MPS, provided that the BlackRock Manager does not know
that the proceeds will be applied to the repayment of debt owed to an
MPS. If the BlackRock Manager does know that proceeds of the offering
will be applied to the repayment of debt owed to an MPS, the purchase
of the Securities and the payment of the proceeds to the MPS are exempt
under Section I of this exemption provided that no more than twenty
percent (20%) of the offering is purchased by BlackRock Managers for
Client Plans, and no more than fifty percent (50%) of the offering in
the aggregate is purchased by BlackRock, BlackRock Managers and other
BlackRock Entities for Client Plans, other clients of BlackRock
Managers, or as proprietary investments.
L. Bank Deposits and Commercial Paper. Relief under Section I of
this exemption is available for an investment by a BlackRock Manager of
Client Plan assets which involves the purchase or other acquisition,
holding, sale, exchange or redemption by or on behalf of a Client Plan
of certificates of deposit, time deposits or other bank deposits at an
MPS, or in commercial paper issued by an MPS, provided that:
1. With respect to bank deposits, either:
(a)(i) The bank is supervised by the United States or a State, and
at the outset of the Covered Transaction or renewal thereof of, such
bank has a credit rating in one of the top two (2) categories by at
least one of the Rating Organizations; (ii) neither the bank nor an
affiliate of the bank has discretionary authority or control with
respect to the investment of Client Plan assets involved in the Covered
Transaction or renders investment advice (within the meaning of 29 CFR
Sec. 2510.3-21(c)) with respect to those assets; and (iii) such
deposit bears a reasonable interest rate, or--
(b) The BlackRock Manager and the MPS comply with ERISA section
408(b)(4).
2. With respect to commercial paper:
(a) The Client Plan is not an MPS Plan of the MPS issuing the
commercial paper;
(b) The commercial paper has a stated maturity date of nine (9)
months or less from the date of issue, exclusive of days of grace, or
is a renewal of an issue of commercial paper the maturity of which is
likewise limited;
(c) Neither the MPS issuer of the commercial paper, any MPS
guarantor of the commercial paper, nor any member of the same MPS Group
as such MPS issuer or guarantor has discretionary authority or control
with
[[Page 15089]]
respect to the investment of the Client Plan assets involved in the
Covered Transaction or renders investment advice (within the meaning of
29 CFR Sec. 2510.3-21(c)) with respect to those assets; and
(d) At the time it is acquired, the commercial paper is ranked in
one of the two (2) highest rating categories by at least one of the
Rating Organizations.
3. For purposes of the Covered Transactions set forth in this
Section III.L.:
(a) No BlackRock Entity shall be regarded as an affiliate of an MPS
bank at which a deposit is made of Client Plan assets, nor of an MPS
issuer of commercial paper in which a BlackRock Manager invests Client
Plan assets, and
(b) Section III.L.1.(a)(ii) and Sections III.L.2.(a) and (c) shall
be deemed satisfied notwithstanding the investment of assets of an MPS
Plan of the MPS which is the depository bank or issuer of commercial
paper in a Pooled Fund as of the date of the Acquisition, which Pooled
Fund is a bank-maintained common or collective trust, provided that
such assets when aggregated with the assets of all other MPS Plans of
the same MPS Group as the issuer of such asset and invested in such
Pooled Fund, at all times since the date of the Acquisition, constitute
or are deemed pursuant to Section II.A.3.(b) to constitute less than
ten percent (10%) of such Pooled Fund.
M. Securities Lending to an MPS.
1. Relief under Section I of this exemption is available for:
(a) The lending of Securities by a BlackRock Manager that are
assets of a Client Plan to an MPS which is a U.S. Broker-Dealer or a
U.S. Bank provided that the conditions set forth in Section III.M.2.
are met;
(b) The lending of Securities by a BlackRock Manager that are
assets of a Client Plan to an MPS which is a Foreign Broker-Dealer or
Foreign Bank; provided that, the conditions set forth in Section
III.M.2. and Section III.M.3. below are met; and
(c) The payment to a BlackRock Manager of compensation for services
rendered in connection with loans of Client Plan assets that are
Securities to an MPS; provided that, the conditions set forth in
Section III.M.4. below are met.
2. General Conditions for Transactions Described in Sections
III.M.1.(a) and (b).
(a) The length of a Securities loan to an MPS does not exceed one
year in term.
(b) Neither the MPS borrower nor any MPS which is a member of the
same MPS Group as the MPS borrower has or exercises discretionary
authority or control with respect to the investment of the Client Plan
assets involved in the transaction, or renders investment advice
(within the meaning of 29 CFR 2510.3-21(c)) with respect to those
assets. This Section III.M.2.(b) shall be deemed satisfied
notwithstanding the investment of the assets of an MPS Plan of the MPS
which is the borrower under such Securities lending transaction in a
Pooled Fund as of the date of the Acquisition, which Pooled Fund is a
bank-maintained common or collective trust, provided that such assets
when aggregated with the assets of all other MPS Plans of the same MPS
Group as that of the MPS borrower and invested in such Pooled Fund, at
all times since the date of the Acquisition, constitute or are deemed
pursuant to Section II.A.3.(b) to constitute less than ten percent
(10%) of the assets of such Pooled Fund.
(c) The Client Plan receives from the MPS borrower by the close of
the BlackRock Manager's business on the day in which the Securities
lent are delivered to the MPS,
(i) U.S. Collateral having, as of the close of business on the
preceding business day, a market value, or, in the case of bank letters
of credit, a stated amount, equal to not less than one hundred percent
(100%) of the then market value of the Securities lent; or
(ii) Foreign Collateral having as of the close of business on the
preceding business day, a market value, or, in the case of bank letters
of credit, a stated amount, equal to not less than:
(x) One hundred two percent (102%) of the then market value of the
Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System on which the Securities are primarily traded
if the collateral posted is denominated in the same currency as the
Securities lent, or
(y) One hundred five percent (105%) of the then market value of the
Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System on which the Securities are primarily traded
if the collateral posted is denominated in a different currency than
the Securities lent.
(d) Notwithstanding the foregoing, if the BlackRock Manager is a
U.S. Bank or U.S. Broker-Dealer, and such BlackRock Manager indemnifies
the Client Plan with respect to the difference, if any, between the
replacement cost of the borrowed Securities and the market value of the
collateral on the date of a borrower default, the Client Plan receives
from the MPS borrower by the close of the BlackRock Manager's business
on the day in which the Securities lent are delivered to the borrower,
Foreign Collateral having as of the close of business on the preceding
business day, a market value, or, in the case of bank letters of
credit, a stated amount, equal to not less than:
(i) One hundred percent (100%) of the then market value of the
Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System on which the Securities are primarily traded
if the collateral posted is denominated in the same currency as the
Securities lent; or
(ii) One hundred one percent (101%) of the then market value of the
Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System on which the Securities are primarily traded
if the collateral posted is denominated in a different currency than
the Securities lent and such currency is denominated in Euros, British
pounds, Japanese yen, Swiss francs or Canadian dollars; or
(iii) One hundred five percent (105%) of the then market value of
the Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System if the collateral posted is denominated in a
different currency than the Securities lent and such currency is other
than those specified above.
(e)(i) If the MPS borrower is a U.S. Bank or U.S. Broker-Dealer,
the Client Plan receives such U.S. Collateral or Foreign Collateral
from the MPS borrower by the close of the BlackRock Manager's business
on the day in which the Securities are delivered to the MPS borrower.
Such collateral is received by the Client Plan either by physical
delivery, wire transfer or by book entry in a Securities depository
located in the United States, or,
(ii) If the MPS borrower is a Foreign Bank or Foreign Broker-
Dealer, the Client Plan receives U.S. Collateral or Foreign Collateral
from the MPS borrower by the close of the BlackRock Manager's business
on the day in which the Securities are delivered to the borrower. Such
collateral is received by the Client Plan either by physical delivery,
wire transfer or by book entry in a Securities depository located in
the United States or held on behalf of the Client Plan at an Eligible
Securities Depository. The indicia of ownership of such collateral
shall be maintained in accordance with section 404(b) of ERISA and 29
CFR 2550.404b-1.
(f) Prior to making of any such loan, the MPS borrower shall have
furnished the BlackRock Manager with:
[[Page 15090]]
(i) The most recent available audited statement of the MPS
borrower's financial condition, as audited by a United States certified
public accounting firm or in the case of an MPS borrower that is a
Foreign Broker-Dealer or Foreign Bank, a firm which is eligible or
authorized to issue audited financial statements in conformity with
accounting principles generally accepted in the primary jurisdiction
that governs the borrowing MPS Foreign Broker-Dealer or Foreign Bank;
(ii) The most recent available unaudited statement of its financial
condition (if the unaudited statement is more recent than such audited
financial statement); and
(iii) A representation that, at the time the loan is negotiated,
there has been no material adverse change in its financial condition
since the date of the most recent financial statement furnished to the
BlackRock Manager that has not been disclosed to the BlackRock Manager.
Such representations may be made by the MPS borrower's agreement that
each loan shall constitute a representation by the MPS borrower that
there has been no such material adverse change.
(g) The loan is made pursuant to a written loan agreement, the
terms of which are at least as favorable to the Client Plan as an
arm's-length transaction with an unrelated party would be. Such loan
agreement states that the Client Plan has a continuing security
interest in, title to, or the rights of secured creditor with respect
to the collateral. Such agreement may be in the form of a master
agreement covering a series of Securities lending transactions.
(h) The written loan agreement must be a standardized industry
form; provided, that, with the approval of the ECO on or about the date
of the Acquisition, written loan agreements with an MPS borrower that
were in effect as of the date of the Acquisition may continue to be
used until there is a material modification of the same, at which time
standardized industry forms must be adopted.
(i) In return for lending Securities, the Client Plan:
(i) Receives a reasonable fee (in connection with the Securities
lending transaction), and/or
(ii) Has the opportunity to derive compensation through the
investment of the currency collateral. Where the Client Plan has that
opportunity, the Client Plan may pay a loan rebate or similar fee to
the MPS borrower, if such fee is not greater than the Client Plan would
pay in a comparable transaction with an unrelated party.
(j) All fees and other consideration received by the Client Plan in
connection with the loan of Securities are reasonable. The identity of
the currency in which the payment of fees and rebates will be made is
set forth either in the written loan agreement or the loan confirmation
as agreed to by the MPS borrower and the BlackRock Manager prior to the
making of the loan.
(i) Pricing of a loan to an MPS borrower is based on (i) rates for
comparable loans of the same Security to non-MPS borrowers and (ii)
third-party market data:
(x) For loans of liquid Securities (sometimes referred to as
general collateral loans), an automatic system may be used to price
loans so long as the resulting rate the Client Plan receives from the
MPS borrower is at least as favorable to the Client Plan as the rate
the BlackRock Managers are receiving for Client Plans or other clients
from non-MPS borrowers of the same Security;
(y) For purposes of pricing loans of less liquid Securities
(sometimes referred to as ``special loans''), and for purposes of
determining whether to terminate or continue a loan which does not have
a set term, pricing may also be based on a BlackRock trader
determination that continuing the loan is in the interest of the Client
Plan based on all relevant factors, including price (provided that
price is within the range of prices of other loans of the same Security
to comparable non-MPS borrowers by BlackRock Managers for Client Plans
or other clients) and potential adverse consequences to the Client Plan
of terminating the loan, provided that the pricing data used in making
these decisions is retained and made available for possible review by
the ECO.
(ii) Automatic pricing mechanisms and pricing decisions by traders
are subject to ongoing periodic review by the ECO Function, and the
results of such review are included in reports by the ECO to the IM.
Specifically, the quarterly reports by the ECO to the IM must address
the lending patterns of:
(x) Illiquid Securities to the MPS borrowers from all Client Plans,
including the percentage that loans of such Securities to the MPSs
represent of all loans of such Securities from all Client Plans; and
(y) Illiquid Securities to the MPS borrowers from all Other
Accounts or Funds, including the percentage that loans of such
Securities to the MPSs represent of all loans of such Securities from
all Other Accounts or Funds.
(k) The Client Plan receives the equivalent of all distributions
made to holders of the borrowed Securities during the term of the loan
including, but not limited to, dividends, interest payments, shares of
stock as a result of stock splits and rights to purchase additional
Securities;
(l) If the market value of the collateral at the close of trading
on a business day is less than the applicable percentage of the market
value of the borrowed Securities at the close of trading on that day
(as described in this Section III.M.2.(c) of this exemption), then the
MPS borrower shall deliver, by the close of business on the following
business day, an additional amount of U.S. Collateral or Foreign
Collateral the market value of which, together with the market value of
all previously delivered collateral, equals at least the applicable
percentage of the market value of all the borrowed Securities as of
such preceding day.
Notwithstanding the foregoing, part of the U.S. Collateral or
Foreign Collateral may be returned to the MPS borrower if the market
value of the collateral exceeds the applicable percentage (described in
this Section III.M.2.(c) of this exemption) of the market value of the
borrowed Securities, as long as the market value of the remaining U.S.
Collateral or Foreign Collateral equals at least the applicable
percentage of the market value of the borrowed Securities.
(m) The loan may be terminated by the Client Plan at any time,
whereupon the MPS borrower shall deliver certificates for Securities
identical to the borrowed Securities (or the equivalent thereof in the
event of reorganization, recapitalization or merger of the issuer of
the borrowed Securities) to the Client Plan within the lesser of:
(i) The customary delivery period for such Securities,
(ii) Five business days, or
(iii) The time negotiated for such delivery by the BlackRock
Manager for the Client Plan, and the borrower.
(n) In the event that the loan is terminated, and the MPS borrower
fails to return the borrowed Securities or the equivalent thereof
within the applicable time described in Section III.M.2(m), the
BlackRock Manager for the Client Plan may, under the terms of the loan
agreement:
(i) Purchase Securities identical to the borrowed Securities (or
their equivalent as described above) and may apply the collateral to
the payment of the purchase price, any other obligations of the
borrower under the agreement, and any expenses associated with the sale
and/or purchase, and
(ii) The MPS borrower is obligated, under the terms of the loan
agreement, to pay, and does pay to the Client Plan
[[Page 15091]]
the amount of any remaining obligations and expenses not covered by the
collateral, including reasonable attorney's fees incurred by the Client
Plan for legal action arising out of default on the loans, plus
interest at a reasonable rate.
Notwithstanding the foregoing, the MPS borrower may, in the event
the MPS borrower fails to return borrowed Securities as described
above, replace collateral, other than U.S. currency, with an amount of
U.S. currency that is not less than the then current market value of
the collateral, provided such replacement is approved by the BlackRock
Manager.
(o) If the MPS borrower fails to comply with any provision of a
loan agreement which requires compliance with this exemption, the
BlackRock Manager who caused the Client Plan to engage in such
transaction shall not be deemed to have caused the Client Plan to
engage in a transaction prohibited by ERISA sections 406(a)(1)(A)
through (D) or ERISA section 406(b) or FERSA section 8477(c) solely by
reason of the borrower's failure to comply with the conditions of the
exemption.
(p) If the Securities being loaned to an MPS borrower are managed
in an Index Account or Fund, or a Model-Driven Account or Fund where
the Index or the Model are created or maintained by the MPS borrower,
the ECO Function periodically performs a review, no less than
quarterly, of the use of such MPS-sponsored Index or Model, and the
Securities loaned from such an account or fund to the MPS, which review
is designed to enable a reasonable judgment as to whether the use of
such Index or Model, or any changes thereto, were for the purpose of
benefitting BlackRock or the MPS through the Securities lending
activity described in this Section III.M. If the ECO forms a reasonable
judgment that the use of such Index or Model, or any changes thereto,
were for the purpose of benefitting BlackRock or the MPS, the ECO shall
promptly inform the IM.
(q) In the event of any dispute between the BlackRock Manager on
behalf of a Client Plan and an MPS borrower involving a Covered
Transaction under this Section III.M., the IM shall decide whether, and
if so, how the BlackRock Manager is to pursue relief on behalf of the
Client Plan(s) against the MPS borrower.
(r) If the Securities being loaned to an MPS borrower are managed
in an Other Account or Fund, the employees of the BlackRock Manager who
exercise discretionary authority or control over the Other Account or
Fund shall not have access to the information regarding whether the
particular Securities are on loan to an MPS, with such access
limitations imposed on or about September 30, 2010 and implemented
through the EPPs on or about September 30, 2010.
3. Specific Conditions for Transactions Described in Section
III.M.1.(b).
(a) The BlackRock Manager maintains the written documentation for
the loan agreement at a site within the jurisdiction of the courts of
the United States.
(b) Prior to entering into a transaction involving an MPS Foreign
Broker-Dealer or an MPS Foreign Bank either:
(i) The MPS Foreign Broker-Dealer or Foreign Bank agrees to submit
to the jurisdiction of the United States; agrees to appoint an agent
for service of process in the United States, which may be an affiliate;
consents to service of process on such agent; and agrees that any
enforcement by a Client Plan of its rights under the Securities lending
agreement will, as the option of the Client Plan, occur exclusively in
the United States courts; or
(ii) The BlackRock Manager, if a U.S. Bank or U.S. Broker-Dealer,
agrees to indemnify the Client Plan with respect to the difference, if
any, between the replacement cost of the borrowed Securities and the
market value of the collateral on the date of an MPS borrower default
plus interest and any transaction costs incurred (including attorney's
fees of such Client Plan arising out of the default on the loans or the
failure to indemnify properly under this provision) which the Client
Plan may incur or suffer directly arising out of a borrower default by
the MPS Foreign Broker-Dealer or Foreign Bank.
(c) In the case of a Securities lending transaction involving an
MPS Foreign Broker-Dealer or an MPS Foreign Bank, the BlackRock Manager
must be a U.S. Bank or U.S. Broker-Dealer, and prior to entering into
the loan transaction, such BlackRock Manager must agree to indemnity
the Client Plan with respect to the difference, if any, between the
replacement cost of the borrowed Securities and the market value of the
collateral on the date of an MPS borrower default plus interest and any
transaction costs incurred (including attorney's fees of such plan
arising out of the default on the loans or the failure to indemnify
properly under this provision) which the Client Plan may incur or
suffer directly arising out of a borrower default by the MPS Foreign
Broker-Dealer or Foreign Bank.
4. Specific Conditions for Transactions Described in Section
III.M.1.(c):
(a) The loan of Securities is not prohibited by section 406(a) of
ERISA or otherwise satisfies the conditions of this exemption.
(b) The BlackRock Manager is authorized to engage in Securities
lending transactions on behalf of the Client Plan.
(c) The compensation, the terms of which are at least as favorable
to the Client Plan as an arm's length transaction with an unrelated
party, is reasonable and is paid in accordance with the terms of a
written instrument, which may be in the form of a master agreement
covering a series of Securities lending transactions.
(d) Except as otherwise provided in Section III.M.4.(f), the
arrangement under which the compensation is paid:
(i) Is subject to the prior written authorization of a fiduciary of
a Client Plan (the authorizing fiduciary), who is (other than in the
case of an In-House Plan) independent of the BlackRock Manager,
provided that for purposes of this Section III.M.4.(d) a fiduciary of
an MPS Plan acting as the authorizing fiduciary shall be deemed
independent of the BlackRock Manager so long as such fiduciary, as of
the date of the authorization, is not a BlackRock Entity, and
(ii) May be terminated by the authorizing fiduciary within:
(x) The time negotiated for such notice of termination by the
Client Plan and the BlackRock Manager, or
(y) Five business days, whichever is less, in either case without
penalty to the Client Plan.
(e) No such authorization is made or renewed unless the BlackRock
Manager shall have furnished the authorizing fiduciary with any
reasonably available information which the BlackRock Manager reasonably
believes to be necessary to determine whether such authorization should
be made or renewed, and any other reasonably available information
regarding the matter that the authorizing fiduciary may reasonably
request.
(f) Special Rule for Commingled Investment Funds. In the case of a
pooled separate account maintained by an insurance company qualified to
do business in a State or a common or collective trust fund maintained
by a bank or trust company supervised by a State or Federal agency, the
requirements of Section III.M.4.(d) of this exemption shall not apply,
provided that:
(i) The information described in Section III.M.4.(e) (including
information with respect to any material change in the arrangement)
shall be furnished by the BlackRock Manager to
[[Page 15092]]
the authorizing fiduciary described in Section III.M.4.(d) with respect
to each Client Plan whose assets are invested in the account or fund,
not less than 30 days prior to implementation of the arrangement or
material change thereto, and, where requested, upon the reasonable
request of the authorizing fiduciary;
(ii) In the event any such authorizing fiduciary submits a notice
in writing to the BlackRock Manager objecting to the implementation of,
material change in, or continuation of the arrangement, the Client Plan
on whose behalf the objection was tendered is given the opportunity to
terminate its investment in the account or fund, without penalty to the
Client Plan, within such time as may be necessary to effect such
withdrawal in an orderly manner that is equitable to all withdrawing
plans and to the non-withdrawing plans. In the case of a Client Plan
that elects to withdraw pursuant to the foregoing, such withdrawal
shall be effected prior to the implementation of, or material change
in, the arrangement; but an existing arrangement need not be
discontinued by reason of a Client Plan electing to withdraw; and
(iii) In the case of a Client Plan whose assets are proposed to be
invested in the account or fund subsequent to the implementation of the
compensation arrangement and which has not authorized the arrangement
in the manner described in Sections III.M.4.(f)(i) and (ii), the Client
Plan's investment in the account or fund shall be authorized in the
manner described in Section III.M.4.(d)(i).
N. To-Be-Announced Trades (TBAs) of GNMA, FHLMC or FNMA Mortgage-
Backed Securities with an MPS Counterparty. Relief under Section I of
this exemption is available for trades (purchases and sales) on a
principal basis of mortgage-backed Securities issued by FHLMC, FNMA or
guaranteed by GNMA and meeting the definition of ``guaranteed
governmental mortgage pool certificate'' in 29 CFR 2510.3-101(i) with
an MPS on a TBA basis, including, when applicable, delivery of the
underlying Securities to a Client Plan, provided that:
1. The Covered Transactions under this Section III.N. are a result
of the Three Quote Process; provided that, solely for purposes of this
Section III.N.1., firm quotes under the Three Quote Process may also
include firm quotes obtained on comparable Securities, as described
below, when firm quotes with respect to the applicable TBA transactions
are not reasonably attainable.
2. With regard to purchases of FHLMC and FNMA mortgage-backed
Securities on a TBA basis, (i) the BlackRock Manager makes a
determination that such Securities are of substantially similar credit
quality as GNMA guaranteed governmental mortgage pool certificates,
(ii) the ECO (in regular consultation with and under the supervision of
the IM) monitors the credit spread between GNMA and FHLMC/FNMA
mortgage-backed Securities, and (iii) each of the ECO and the IM
(independently) has the authority and responsibility to determine
whether purchases of FHLMC and/or FNMA mortgage-backed Securities on a
TBA basis should not be permitted due to such credit spread, and such
authority and responsibility is reflected in the EPPs.
3. With regard to possible delivery of underlying Securities to
Client Plans, as opposed to cash settlement, the ECO Function approves
any such delivery in advance.
For purposes of Section III.N.1., ``comparable Securities'' are
Securities that: (a) Are issued and/or guaranteed by the same agency,
(b) have the same coupon, (c) have a principal amount at least equal to
but no more than two percent (2%) greater than the Security purchased
or sold, (d) are of the same program or class, and (e) either (i) have
an aggregate weighted average monthly maturity within a 12-month
variance of the Security purchased or sold, but in no case can the
variance be more than ten percent (10%) of such aggregate weighted
average maturity of the Securities purchased or sold, or (ii) meet some
other comparable objective standard containing a range of variance that
is no greater than that described in (i) above and that assures that
the aging of the Securities is properly taken into account.
O. Foreign Exchange Transactions With an MPS Counterparty. Relief
under Section I of this exemption is available for a Foreign Exchange
Transaction by a BlackRock Manager on behalf of Client Plans with an
MPS as counterparty provided that:
1. (a) The Foreign Exchange Transaction is as a result of the Three
Quote Process; or (b) the total net amount of the Foreign Exchange
Transaction on behalf of Client Plans by BlackRock Managers is greater
than $1 million and the exchange rate is within 0.5% above or below the
Interbank Rate as represented to the BlackRock Managers by the MPS;
2. Foreign Exchange Transactions with an MPS counterparty only
involve currencies of countries that are classified as ``developed'' or
``emerging'' markets by a third party Index provider that divides
national economies into ``developed,'' ``emerging'' and ``frontier''
markets. The Index provider shall be selected by BlackRock, provided,
however, the IM shall have the right to reject the Index provider in
its sole discretion at any time; and
3. Each Foreign Exchange Transaction complying with Section
III.O.1.(b) must be set forth in the applicable quarterly reports of
the ECO to the IM.
P. Agency Execution of Equity and Fixed Income Securities Trades
and Related Clearing as Described in PTE 86-128, Including Agency Cross
Trades, When the Broker is an MPS. Relief under Section I of this
exemption is available for transactions in Securities described in
Section II of PTE 86-128, as from time to time amended,\58\ as if
BlackRock Managers and MPS broker-dealers were ``affiliates'' as
defined in Section I.(b) of PTE 86-128, provided the following
conditions are satisfied:
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\58\ 51 FR 41686 (Nov. 18, 1986), as amended, 67 FR 64137 (Oct.
17, 2002).
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1. The MPS is selected to perform Securities brokerage services for
Client Plans pursuant to the normal brokerage placement practices,
policies and procedures of the BlackRock Manager designed to ensure
best execution.
2. The conditions of PTE 86-128 set forth in the following sections
of that exemption must be complied with: Section III(e); Section
III(f); Section III(g)(2); and Section III(h); provided, however, that
the first sentence of section III(h) of PTE 86-128 is amended for
purposes of this Section III.P.2. to provide as follows: ``A trustee
[other than a nondiscretionary trustee] may only engage in a covered
transaction with a plan that has total net assets with a value of at
least $50 million and in the case of a pooled fund, the $50 million
requirement will be met if fifty percent (50%) or more of the units of
beneficial interest in such pooled fund are held by investors having
total net assets with a value of at least $50 million.''
3. The ECO Function receives the information required to be
provided to the ``authorizing fiduciary'' under Section III(e), Section
III(f) and Section III(g)(2) of PTE 86-128, and the ECO has the
authority to terminate the use of the MPS as broker-dealer without
penalty to Client Plans at any time.
4. With respect to agency cross transactions described in Section
III(g) of PTE 86-128 that are being effected or executed by an MPS
broker, (i) neither the MPS broker effecting or executing the agency
cross transaction nor any member of the same MPS Group as the MPS
broker effecting or executing the
[[Page 15093]]
agency cross transaction may have discretionary authority to act on
behalf of, and/or provide investment advice to another party to the
agency cross transaction which is a seller when the Client Plan is a
buyer, or which is a buyer, when the Client Plan is a seller (Another
Party), and (ii), the BlackRock Manager instituting the transaction for
the Client Plan must not have knowledge that a BlackRock Entity has
discretionary authority and/or provides investment advice to Another
Party to the agency cross transaction.
5. The exceptions in Sections IV(a), (b), and (c) of PTE 86-128 are
applicable to this exemption.
6. Notwithstanding the other conditions of this Section III.P.,
with respect to Client Plans which as of the date of the Acquisition
had in place with BlackRock Managers either directed brokerage and/or
wrap fee arrangements which required the BlackRock Managers to use an
MPS as a Securities broker, BlackRock Managers may continue to use that
MPS as the Securities broker for such Client Plans under the brokerage
procedures in place as of the date of the Acquisition; provided that a
list of all of such arrangements has been provided to the ECO and no
material changes are made to such arrangements.
Q. Use by BlackRock Managers of Exchanges and Automated Trading
Systems on Behalf of Client Plans. Relief under Section I of this
exemption is available for the direct or indirect use by, or directing
of trades to, U.S. and non-U.S. exchanges or U.S. Automated Trading
Systems (ATS) in which one or more MPSs have an ownership interest by
BlackRock Managers for Client Plans, provided that:
1. Prior to January 1, 2011,
(a) No single MPS (together with other members of the same MPS
Group) has a greater than twenty percent (20%) ownership interest in
the exchange or the ATS; and
(b) The ECO does not make a determination, summarized in the ECO
quarterly report, that a BlackRock Manager or all BlackRock Managers
must discontinue such direct or indirect use of or the directing of
trades to any such exchange or ATS on the basis that either the amount
of use or the volume of trades is unwarranted or not in the interests
of the Client Plans and their participants and beneficiaries.
2. Effective on and after January 1, 2011, either
(a) No one MPS (together with other members of the same MPS Group)
has (i) a greater than ten percent (10%) ownership interest in the
exchange or ATS or (ii) the BlackRock Managers do not know the level of
such ownership interest; or
(b) If a BlackRock Manager knows that an MPS (together with other
members of the same MPS Group) has an ownership interest that is
greater that ten percent (10%) but not greater than twenty percent
(20%) in the exchange or ATS,
(i) The ECO makes a determination, summarized in the ECO quarterly
report, that there is no reason for a BlackRock Manager or all
BlackRock Managers to discontinue such direct or indirect use of or the
directing of trades to any such exchange or ATS on the basis that the
amount of use or the volume of trades is unwarranted or not in the
interests of the Client Plans and their participants and beneficiaries,
and does not make a determination that a BlackRock Manager or all
BlackRock Managers must discontinue such direct or indirect use of or
the directing of trades to any such exchange or ATS on the basis that
the amount of use or the volume of trades is unwarranted or not in the
interests of the Client Plans and their participants and beneficiaries.
The IM may request any additional information relating to any such
determination summarized in the ECO quarterly report and may, after
consultation with the ECO, make a determination that a BlackRock
Manager or all BlackRock Managers must discontinue such direct or
indirect use of or the directing of trades to any such exchange or ATS
on the basis that the amount of use or the volume of trades is
unwarranted or not in the interests of the Client Plans and their
participants and beneficiaries;
(ii) The price and compensation associated with any purchases or
sales utilizing such exchange or ATS are not greater than the price and
compensation associated with an arm's length transaction with an
unrelated party;
(iii) All such exchanges and ATSs shall be situated within the
jurisdiction of the U.S. District Courts and regulated by a U.S.
federal regulatory body or a U.S. federally approved self-regulatory
body, provided that this condition shall not apply to the direct or
indirect use of or the directing of trades to an exchange in a country
other than the United States which is regulated by a government
regulator or a government approved self-regulatory body in such country
and which involves trading in Securities (including the lending of
Securities) or futures contracts; and
(iv) Special Notice of all of the foregoing conditions for relief
under this Section II.Q.2.(b) must be provided in accordance with the
terms of Section II.F.
R. Purchases in the Secondary Market of Common and Preferred Stock
Issued by an MPS by BlackRock Managers for Client Plans Invested in an
Index Account or Fund, or a Model-Driven Account or Fund. Relief under
Section I of this exemption is available for the purchase in the
secondary market of common or preferred stock issued by an MPS by
BlackRock Managers for Client Plans invested in an Index Account or
Fund, or a Model-Driven Account or Fund provided that:
1. Such purchase is for the sole purpose of maintaining
quantitative conformity with the weight of such Securities prescribed
by the relevant Index, for Index Accounts or Funds, or the weight of
such Securities prescribed by the relevant Model, for Model-Driven
Accounts or Funds, and such purchase may not exceed the purchase amount
necessary for such Model or quantitative conformity.
2. Such purchase is not made from the issuing MPS.
3. Notwithstanding Section III.R.2.,
(a) With respect to Client Plans which as of the date of the
Acquisition had in place with a BlackRock Manager either a directed
brokerage and/or wrap fee arrangement which required the BlackRock
Manager to use a certain MPS as a Securities broker, the BlackRock
Manager may purchase MPS common or preferred stock through such MPS,
including, if applicable, the issuing MPS, acting as agent under the
brokerage arrangement in place as of the date of the Acquisition;
provided that, a list of all of such arrangements has been provided to
the ECO and no material changes are made to such arrangements. Special
Notice of all of the foregoing conditions for relief under this Section
III.R. must be provided in accordance with the terms of Section II.F.
(b) BlackRock Managers may rely on other exemptive relief when
acquiring stock of an MPS for Client Plans through an MPS broker,
including the issuing MPS.
S. Purchase in the Secondary Market of Common and Preferred Stock
Issued by an MPS by BlackRock Managers for Client Plans Invested in an
Other Account or Fund. Relief under Section I of this exemption is
available for the purchase in the secondary market of common or
preferred stock issued by an MPS by BlackRock Managers for Client Plans
invested in an Other Account or Fund provided that:
1. Such purchase is not made from the issuing MPS.
2. Notwithstanding Section III.S.1.,
(a) With respect to Client Plans which as of the date of the
Acquisition had in place with a BlackRock Manager either
[[Page 15094]]
a directed brokerage and/or wrap fee arrangement which required the
BlackRock Manager to use a certain MPS as a Securities broker, the
BlackRock Manager may purchase MPS common or preferred stock through
such MPS, including if applicable, the issuing MPS, acting as agent
under the brokerage arrangements in place as of the date of the
Acquisition; provided that, a list of all of such arrangements has been
provided to the ECO and no material changes are made to such
arrangements. Special Notice of all of the foregoing conditions for
relief under this Section III.S. must be provided in accordance with
the terms of Section II.F.
(b) BlackRock Managers may rely on other exemptive relief when
acquiring stock of an MPS for Client Plans under this Section III.S.
through an MPS broker, including the issuing MPS.
3. With respect to Client Plans described in Section III.S.2.(a),
the ECO Function periodically monitors purchases of MPS stock for such
Client Plans to ensure that the amount of stock of an MPS purchased for
such Client Plans is not disproportionate to the amount of such stock
of the same MPS purchased for Client Plans invested in Other Accounts
or Funds not subject to directed brokerage and/or wrap fee arrangements
and described in Section III.S.2.(a).
4. As a consequence of a purchase of MPS stock, the class of stock
purchased does not constitute more than five (5) percent of the Other
Account or Fund. In the case of a Pooled Fund, the class of stock
purchased and attributed to each Client Plan does not exceed five
percent (5%) of such Client Plan's proportionate interest in the Pooled
Fund.
5. Aggregate daily purchases of a class of MPS stock for Client
Plans do not exceed the greater of (i) fifteen percent (15%) of the
aggregate average daily trading volume (ADTV) for the previous ten (10)
trading days, or (ii) fifteen percent (15%) of trading volume on the
date of the purchase. These volume limitations must be met on a
portfolio manager by portfolio manager basis unless purchases are
coordinated among portfolio managers, in which case the limitations are
applied to the coordinated purchase.\59\ Any coordinated purchases of
the same class of MPS stock in the secondary market for Index Accounts
or Funds or for Model-Driven Accounts or Funds must be taken into
account when applying these ADTV limitations on purchases for an Other
Account or Fund; provided, however, if coordinated purchases for Index
Accounts or Funds, or for Model-Driven Accounts or Funds, would cause
the fifteen percent (15%) limitation to be exceeded, BlackRock Managers
can nonetheless acquire for Other Accounts or Funds up to the greater
of five percent (5%) of ADTV for the previous ten (10) trading days or
five percent (5%) of trading volume on the day of the Covered
Transaction. For purposes of this Section III.S.5., cross trades of MPS
equity Securities which comply with an applicable statutory or
administrative prohibited transaction exemption are not taken into
account.
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\59\ For example, if two or more portfolio managers send their
purchase orders to the same trading desk and the traders on that
trading desk coordinate the purchases of the same MPS equity
Securities, the limitations apply to the trading desk; if two or
more portfolio managers or two or more trading desks are
coordinating purchases of MPS equity Securities, the limitations are
applied across the group of portfolio managers or traders who are
coordinating the purchase orders.
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6. The ECO Function monitors the volume limits on purchases of MPS
stock described in Section III.S.5. and provides a monthly report to
the IM with respect to such purchases and limits. The IM shall impose
lower volume limitations and take other appropriate action with respect
to such purchases if the IM determines on the basis of these reports by
the ECO and publicly available information materially related to the
trading of the Securities of an MPS on its primary listing exchange (or
market) that the purchases described have a material positive impact on
the market price for such Securities.
T. The Provision of Custodial, Administrative and Similar
Ministerial Services by an MPS for a Client Plan as a Consequence of a
BlackRock Manager Exercising Investment Discretion on Behalf of the
Client Plan or Rendering Investment Advice to the Client Plan. Relief
under Section I of this exemption is available for the provision of
custodial, administrative and similar ministerial services by an MPS
for a Client Plan as a consequence of a BlackRock Manager exercising
investment discretion or rendering investment advice (in each case,
within the meaning of ERISA section 3(21)(A)) for or to such Client
Plan, provided that (1) the terms of such service are comparable to
those a Client Plan would receive in an arm's length transaction with
an unrelated party and (2) the ECO approves in advance and in writing
(which may include electronic communication if retrievable by the ECO)
the choice or recommendation of the MPS by the BlackRock Manager and
the terms of the services, including but not limited to, the associated
fees.
U. Purchases, Sales and Holdings by BlackRock Managers for Client
Plans of Commercial Paper Issued by ABCP Conduits, When an MPS Has One
or More Roles. Relief under Section I of this exemption is available
for the purchase, holding and sale by BlackRock Managers acting on
behalf of Client Plans of commercial paper issued by an ABCP Conduit
with respect to which an MPS acts as placement agent, and/or in some
continuing capacity such as program administrator, provider of
liquidity, or provider of credit support, provided that:
1. (a)(i) The Client Plan is not an MPS Plan of the MPS with whom
the purchase or sale takes place, or an MPS Plan of another member of
the same MPS Group as such MPS, and (ii) the Client Plan is not an MPS
Plan of an MPS which is acting in a continuing capacity, or an MPS Plan
of another member of the same MPS Group as such MPS, and (iii) no MPS
described in Sections III.U.1.(a)(i) or (ii), or another member of the
same MPS Group as such MPS, has discretionary authority or control with
respect to the Client Plan assets involved in the Covered Transaction
or renders investment advice (within the meaning of 29 CFR 2510.3-
21(c)) with respect to such assets;
(b) This Section III.U.1 shall be deemed satisfied notwithstanding
the investment of assets of an MPS Plan of the MPS, which is placement
agent or otherwise is acting in a continuing capacity, in a Pooled Fund
as of the date of the Acquisition, which Pooled Fund is a bank-
maintained common or collective trust, provided that such assets when
aggregated with the assets of all other MPS Plans of the same MPS Group
as the MPS which is the placement agent or otherwise is acting in a
continuing capacity and invested in such Pooled Fund, at all times
since the date of the Acquisition, constitute or are deemed pursuant to
Section II.A.3.(b) to constitute less than ten percent (10%) of such
Pooled Fund.
2. The commercial paper has a stated maturity date of nine months
or less from the date of issue, exclusive of days of grace, or is a
renewal of an issue of commercial paper the maturity of which is
likewise limited;
3. At the time it is acquired, the commercial paper is ranked in
the highest rating category by at least one of the Rating
Organizations;
4. If the seller or purchaser of the ABCP Conduit commercial paper
is an MPS and/or an MPS performs a continuing role with respect to the
Securities, secondary market purchases and sales are pursuant to the
Three
[[Page 15095]]
Quote Process, provided that, for purposes of this Section III.U.4.,
firm quotes on comparable short-term money market instruments rated in
the same category may be used as quotes for purposes of the Three Quote
Process;
5. If an MPS performs a continuing role and there is a default, the
taking of or refraining from taking of any action by the responsible
BlackRock Manager which could have a material positive or negative
effect upon the MPS is decided upon by the IM;
No BlackRock Entity is to be regarded as an affiliate of any MPS
for purposes of the Covered Transactions set forth in this Section
III.U.
V. Purchase, Holding and Disposition by BlackRock Managers for
Client Plans of Shares of Exchange-Traded Open-End Investment Companies
Registered Under the 1940 Act (ETF) Managed by BlackRock Managers.
Relief under Section I of this exemption is available for the purchase,
holding and disposition by BlackRock Managers for Client Plans of
shares of an ETF managed by a BlackRock Manager provided that:
1. (a) The BlackRock Manager purchases such ETF shares from or
through a person other than an MPS or a BlackRock Entity, and
(b) No purchase is exempt under Section I of this exemption if the
BlackRock Manager portfolio manager acting for the Client Plan knows or
should know that the shares to be acquired for Client Plans are
Creation Shares, or that the purchase for Client Plans will result in
new Creation Shares.
2. Notwithstanding Section III.V.1.(a), BlackRock Managers may
purchase shares of ETFs managed by a BlackRock Manager through an MPS
acting as agent for Client Plans which, as of the date of the
Acquisition, had in place with a BlackRock Manager either a directed
brokerage and/or wrap fee arrangement which required the BlackRock
Manager to use such MPS as a Securities broker; provided that, (i) a
list of all of such arrangements has been provided to the ECO and no
material changes are made to such arrangements and (ii) the ECO
Function periodically monitors purchases of Securities to ensure that
the amount of BlackRock-managed ETF shares purchased for Client Plans
under Section III.V.2. is not disproportionate to the amount of
BlackRock-managed ETF shares purchased for Client Plans pursuant to
Section III.V.1. Special Notice of all of the foregoing conditions for
relief under this Section III.V.2. must be provided in accordance with
the terms of Section II.F.
W. Investment of Assets of MPS Plans in a BlackRock Bank-Maintained
Common or Collective Trust as of the Date of the Acquisition--Fees Paid
Outside the Trust. Relief under Section I of this exemption is
available with respect to MPS Plans invested in Pooled Funds as of the
date of the Acquisition, which Pooled Funds are common or collective
trusts maintained by BlackRock Institutional Trust Company, N.A., and
in connection with which investments such MPS Plans pay management fees
directly to BlackRock Managers until the earliest of (i) termination of
the investment in the Pooled Fund, (ii) transition of the fee
arrangement to one under which the BlackRock Manager's fees are paid
from assets of the Pooled Fund or by the MPS Plan sponsor, or (iii)
December 31, 2010 (Unwind Period 2) provided that:
1. The fees paid by such MPS Plans to the BlackRock Managers during
Unwind Period 2 are neither more than reasonable compensation nor
significantly more than fees paid to the BlackRock Managers by other,
comparable Client Plans invested in such Pooled Funds which are not MPS
Plans; and
2. The MPS Plans do not pay to BlackRock Managers during Unwind
Period 2 any type of fee or other compensation that was not charged to
or otherwise borne by MPS Client Plan investors in the Pooled Fund as
of the date of the Acquisition.
During Unwind Period 2, the IM must review the investment by the
MPS Plans in the Pooled Fund; all fees paid by the affected MPS Plans
to BlackRock Managers must be disclosed to the IM; the IM must review
the offering documents for the Pooled Funds and any advisory or
management agreements with BlackRock Managers; and any material change
in the terms and conditions of the investment by the affected MPS Plans
in the Pooled Fund, including but not limited to changes to fees paid
to BlackRock Managers or the terms of the advisory or management
agreements with BlackRock Managers, must be promptly disclosed to the
IM and be subject to the IM's written approval. Further, during Unwind
Period 2, each such MPS Plan may terminate its investment in the Pooled
Fund upon no more than thirty (30) days notice and without incurring a
redemption fee paid to a BlackRock Manager.
X. Purchase, Holding and Disposition of BlackRock Equity Securities
in the Secondary Market by BlackRock Managers for an Index Account or
Fund, or a Model-Driven Account or Fund, Including Buy-Ups.\60\ Relief
under Section I of this exemption is available for the purchase,
holding and disposition of common or preferred stock issued by
BlackRock in the secondary market by BlackRock Managers for Client
Plans in an Index Account or Fund, or in a Model-Driven Account or Fund
provided that:
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\60\ BlackRock requested such relief for the avoidance of any
issue about the necessity for such relief in particular
circumstances; the Department is not opining on the need for such
relief herein.
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1. The acquisition, holding and disposition of the BlackRock
Securities is for the sole purpose of maintaining quantitative
conformity with the weight of such Securities prescribed by the
relevant Index, for Index Accounts or Funds, or the weight of such
Securities prescribed by the relevant Model, for Model-Driven Accounts
or Funds, and such purchase may not exceed the purchase amount
necessary for such Model or quantitative conformity.
2. Any acquisition of BlackRock Securities does not involve any
agreement, arrangement or understanding regarding the design or
operation of the account or fund acquiring the BlackRock Securities
which is intended to benefit BlackRock or any party in which BlackRock
may have an interest.
3. With respect to an acquisition of BlackRock Securities by such
an account or fund which constitutes a Buy-Up,
(a) The acquisition is made on a single trading day from or through
one broker-dealer, which broker-dealer is not an MPS or a BlackRock
Entity; provided, however, that if the volume limitation in Section
III.X.3.(d) below cannot be satisfied in a single trading day, the
acquisition will be completed in as few trading days as possible in
compliance with such volume limitation and such trades will be reviewed
by the ECO and reported to the IM;
(b) Based upon the best available information, the acquisition is
not the opening transaction of a trading day and is not made in the
last half hour before the close of the trading day;
(c) The price paid by the BlackRock Manager is not higher than the
lowest current independent offer quotation, determined on the basis of
reasonable inquiry from broker-dealers who are not MPSs or BlackRock
Entities;
(d) Aggregate daily purchases do not exceed fifteen percent (15%)
of aggregate average daily trading volume for the Security, as
determined by the greater of (i) the trading volume for the Security
occurring on the applicable Recognized Securities Exchange and/or
[[Page 15096]]
Automated Trading System on the date of the transactions, or (ii) the
aggregate average daily trading volume for the Security occurring on
the applicable Recognized Securities Exchange and/or Automated Trading
System for the previous ten (10) trading days, both based on the best
information reasonably available at the time of the transaction. These
volume limitations are applied on a portfolio manager by portfolio
manager basis unless purchases of BlackRock Securities are coordinated
by the portfolio managers or trading desks, in which case the
limitations are aggregated for the coordinating portfolio managers or
trading desks. Provided further, if BlackRock, without Client Plan
direction or consent, initiates a new Index Account or Fund or Model-
Driven Account or Fund on its own accord, with BlackRock Securities
included therein, the volume restrictions for such new account or fund
shall be determined by aggregating all portfolio managers purchasing
for such new account of fund. Cross trades of BlackRock Securities
which comply with an applicable statutory or administrative prohibited
transaction exemption are not included in the amount of aggregate daily
purchases to which the limitations of this Section III.X. apply;
(e) All purchases and sales of BlackRock Securities occur either
(i) on a Recognized Securities Exchange, (ii) through an Automated
Trading System operated by a broker-dealer that is not a BlackRock
Entity and is either registered under the 1934 Act, and thereby subject
to regulation by the Securities and Exchange Commission, or subject to
regulation and supervision by the Securities and Futures Authority of
the UK or another applicable regulatory authority, which provides a
mechanism for customer orders to be matched on an anonymous basis
without the participation of a broker-dealer, or (iii) through an
Automated Trading System that is operated by a Recognized Securities
Exchange, pursuant to the applicable securities laws, and provides a
mechanism for customer orders to be matched on an anonymous basis
without the participation of a broker-dealer; and
(f) The ECO designs acquisition procedures for BlackRock Managers
to follow in Buy-Ups, which the IM approves in advance of the
commencement of any Buy-Up, and the ECO Function monitors BlackRock
Manager's compliance with such procedures.
Y. Acquisition by BlackRock Managers of Financial Guarantees,
Indemnities and Similar Protections for Client Plans from MPSs. Relief
under Section I of this exemption is available for the provision by an
MPS of a financial guarantee, indemnification arrangement or similar
instrument or arrangement providing protection to a Client Plan against
possible losses or risks provided that:
1. The terms of the arrangement (including the identity of the
provider) are approved by a fiduciary of the Client Plan which is
independent of the MPS providing such protection and of BlackRock;
2. The compensation owed the MPS under the arrangement is paid by a
BlackRock Entity and not paid out of the assets of the Client Plan;
3. In the event a Client Plan or the ECO concludes an event has
occurred which should trigger the obligations of the MPS under the
arrangement, and the MPS disagrees to any material extent, the IM
determines the steps the BlackRock Manager must take to protect the
interests of the Client Plan; and
4. The MPS providing the arrangement is capable of being sued in
United States courts, has contractually agreed to be subject to
litigation in the United States with respect to any matter relating to
this Section III.Y., and has sufficient assets in the United States to
honor its commitments under the arrangement.
SECTION IV: AFFILIATED UNDERWRITINGS AND AFFILIATED SERVICING
A. Affiliated Underwritings
1. The Securities to be purchased are either:
(a) Part of an issue registered under the 1933 Act, or, if
Securities to be purchased are part of an issue that is exempt from
such registration requirement, such Securities:
(i) Are issued or guaranteed by the United States or by any person
controlled or supervised by and acting as an instrumentality of the
United States pursuant to authority granted by the Congress of the
United States,
(ii) Are issued by a bank,
(iii) Are exempt from such registration requirement pursuant to a
federal statute other than the 1933 Act, or
(iv) Are the subject of a distribution and are of a class which is
required to be registered under section 12 of the 1934 Act, and are
issued by an issuer that has been subject to the reporting requirements
of section 13 of the 1934 Act for a period of at least ninety (90) days
immediately preceding the sale of such Securities and that has filed
all reports required to be filed thereunder with the SEC during the
preceding twelve (12) months; or
(b) Part of an issue that is an Eligible Rule 144A Offering. Where
the Eligible Rule 144A Offering of the Securities is of equity
securities, the offering syndicate shall obtain a legal opinion
regarding the adequacy of the disclosure in the offering memorandum; or
(c) Municipal bonds taxable by the United States, including Build
America Bonds created under section 54AA of the Code or successor
thereto, under which the United States pays a subsidy to the state or
local government issuer, but not including Building America Bonds which
provide a tax credit to investors.
2. The Securities to be purchased are purchased prior to the end of
the first day on which any sales are made, pursuant to that offering,
at a price that is not more than the price paid by each other purchaser
of the Securities in that offering or in any concurrent offering of the
Securities, except that:
(a) If such Securities are offered for subscription upon exercise
of rights, they may be purchased on or before the fourth day preceding
the day on which the rights offering terminates; or
(b) If such Securities are debt Securities, they may be purchased
at a price that is not more than the price paid by each other purchaser
of the Securities in that offering or in any concurrent offering of the
Securities and may be purchased on a day subsequent to the end of the
first day on which any sales are made, pursuant to that offering,
provided that the interest rates, as of the date of such purchase, on
comparable debt Securities offered to the public subsequent to the end
of the first day on which any sales are made and prior to the purchase
date are less than the interest rate of the debt Securities being
purchased; and
3. The Securities to be purchased are offered pursuant to an
underwriting or selling agreement under which the members of the
syndicate are committed to purchase all of the Securities being
offered, except if:
(a) Such Securities are purchased by others pursuant to a rights
offering; or
(b) Such Securities are offered pursuant to an over-allotment
option.
4. The issuer of the Securities to be purchased pursuant to this
exemption must have been in continuous operation for not less than
three (3) years, including the operation of any predecessors, unless
the Securities to be purchased:
(a) Are non-convertible debt Securities rated in one of the four
highest rating categories by a Rating Organization; provided that none
of the
[[Page 15097]]
Rating Organizations rates such Securities in a category lower than the
fourth highest rating category; or
(b)(i) are debt Securities issued or fully guaranteed by the United
States or by any person controlled or supervised by and acting as an
instrumentality of the United States pursuant to authority granted by
the Congress of the United States; or
(ii) Are municipal bonds taxable by the United States, including
Build America Bonds created under section 54AA of the Code or successor
thereto, under which the United States pays a subsidy to the state or
local government issuer, but not including Building America Bonds which
provide a tax credit to investors; or
(c) Are debt Securities which are fully guaranteed by a guarantor
that has been in continuous operation for not less than three (3)
years, including the operation of any predecessors, provided that such
guarantor has issued other Securities registered under the 1933 Act; or
if such guarantor has issued other Securities which are exempt from
such registration requirement, such guarantor has been in continuous
operation for not less than three (3) years, including the operation of
any predecessors, and such guarantor is:
(i) A bank;
(ii) An issuer of Securities which are exempt from such
registration requirement, pursuant to a Federal statute other than the
1933 Act; or
(iii) An issuer of Securities that are the subject of a
distribution and are of a class which is required to be registered
under section 12 of the 1934 Act, and are issued by an issuer that has
been subject to the reporting requirements of section 13 of the 1934
Act for a period of at least ninety (90) days immediately preceding the
sale of such Securities and that has filed all reports required to be
filed hereunder with the SEC during the preceding twelve (12) months.
5. The aggregate amount of Securities of an issue purchased,
pursuant to this exemption, by the BlackRock Manager with: (i) The
assets of all Client Plans; and (ii) the assets, calculated on a pro
rata basis, of all Client Plans investing in Pooled Funds managed by
the BlackRock Manager; and (iii) the assets of plans to which the
BlackRock Manager renders investment advice within the meaning of 29
CFR 2510.3 21(c) does not exceed:
(a) Ten percent (10%) of the total amount of the Securities being
offered in an issue, if such Securities are equity securities;
(b) Thirty five percent (35%) of the total amount of the Securities
being offered in an issue, if such Securities are Asset-Backed
Securities rated in one of the three highest rating categories by at
least one of the Rating Organizations; provided that none of the Rating
Organizations rates such Securities in a category lower than the third
highest rating category;
(c) Thirty five percent (35%) of the total amount of the Securities
being offered in an issue, if such Securities are debt Securities rated
in one of the four highest rating categories by at least one of the
Rating Organizations; provided that none of the Rating Organizations
rates such Securities in a category lower than the fourth highest
rating category; or
(d) Twenty five percent (25%) of the total amount of the Securities
being offered in an issue, if such Securities are debt Securities rated
in the fifth or sixth highest rating categories by at least one of the
Rating Organizations; provided that none of the Rating Organizations
rates such Securities in a category lower than the sixth highest rating
category; and
(e) The assets of any single Client Plan (and the assets of any
Client Plans and any In-House Plans investing in Pooled Funds) may not
be used to purchase any Securities being offered, if such Securities
are debt Securities rated lower than the sixth highest rating category
by any of the Rating Organizations;
(f) Notwithstanding the percentage of Securities of an issue
permitted to be acquired, as set forth in Subsections A.(5)(a)-(d) of
this Section IV., the amount of Securities in any issue (whether equity
or debt Securities or Asset-Backed Securities) purchased, pursuant to
this exemption, by the BlackRock Manager on behalf of any single Client
Plan, either individually or through investment, calculated on a pro
rata basis, in a Pooled Fund may not exceed three percent (3%) of the
total amount of such Securities being offered in such issue, provided
that a Sub-Advised Pooled Fund described in Section VI.(AAA) as a whole
may purchase up to three percent (3%) of an issue; and
(g) If purchased in an Eligible Rule 144A Offering, the total
amount of the Securities being offered for purposes of determining the
percentages, described, above, in Section IV.A.5.(a)-(d) and (f), is
the total of:
(i) The principal amount of the offering of such class of
Securities sold by underwriters or members of the selling syndicate to
QIBs; plus
(ii) The principal amount of the offering of such class of
Securities in any concurrent public offering.
6. The aggregate amount to be paid by any single Client Plan in
purchasing any Securities which are the subject of this exemption,
including any amounts paid by any Client Plan in purchasing such
Securities through a Pooled Fund, calculated on a pro rata basis, does
not exceed three percent (3%) of the fair market value of the net
assets of such Client Plan, as of the last day of the most recent
fiscal quarter of such Client Plan prior to such transaction, provided
that a Sub-Advised Pooled Fund as a whole may pay up to one percent
(1%) of fair market value of its net assets in purchasing such
Securities.
7. The covered transactions are not part of an agreement,
arrangement, or understanding designed to benefit any BlackRock Entity
or MPS.
8. Each Client Plan shall have total net assets with a value of at
least $50 million (the $50 Million Net Asset Requirement). For purposes
of engaging in covered transactions involving an Eligible Rule 144A
Offering, each Client Plan shall have total net assets of at least $100
million in Securities of issuers that are not affiliated with such
Client Plan (the $100 Million Net Asset Requirement).
For purposes of a Pooled Fund engaging in an Affiliated
Underwriting, each Client Plan in such Pooled Fund other than a Sub-
Advised Pooled Fund shall have total net assets with a value of at
least $50 million. Notwithstanding the foregoing, if each such Client
Plan in a Pooled Fund other than a Sub-Advised Pooled Fund does not
have total net assets with a value of at least $50 million, the $50
Million Net Asset Requirement will be met, if fifty percent (50%) or
more of the units of beneficial interest in such Pooled Fund are held
by investors, each of which has total net assets with a value of at
least $50 million.
For purposes of a Pooled Fund engaging in an Affiliated
Underwriting involving an Eligible Rule 144A Offering, each Client Plan
in such Pooled Fund other than a Sub-Advised Pooled Fund shall have
total net assets of at least $100 million in Securities of issuers that
are not affiliated with such Client Plan. Notwithstanding the
foregoing, if each such Client Plan in such Pooled Fund other than a
Sub-Advised Pooled Fund does not have total net assets of at least $100
million in Securities of issuers that are not affiliated with such
Client Plan, the $100 Million Net Asset Requirement will be met if
fifty percent (50%) or more of the units of beneficial interest in such
Pooled Fund are held by investors, each of which have total net assets
of at least $100 million in
[[Page 15098]]
Securities of issuers that are not affiliated with such investor, and
the Pooled Fund itself qualifies as a QIB.
For purposes of the net asset requirements described, above in
Section IV.A.8., where a group of Client Plans is maintained by a
single employer or controlled group of employers, as defined in ERISA
section 407(d)(7), the $50 Million Net Asset Requirement (or in the
case of an Eligible Rule 144A Offering, the $100 Million Net Asset
Requirement) may be met by aggregating the assets of such Client Plans,
if the assets of such Client Plans are pooled for investment purposes
in a single master trust.
9. No more than twenty percent (20%) of the assets of a Pooled
Fund, at the time of a covered transaction, are comprised of assets of
In-House Plans for which the BlackRock Manager, or a BlackRock Entity
exercises investment discretion.
10. The BlackRock Manager must be a QPAM, and, in addition to
satisfying the requirements for a QPAM under section VI(a) of PTE 84-
14, the BlackRock Manager must also have total client assets under its
management and control in excess of $5 billion, as of the last day of
its most recent fiscal year and shareholders' or partners' equity in
excess of $1 million.
11. The BlackRock Manager maintains, or causes to be maintained,
for a period of six (6) years from the date of any covered transaction
such records as are necessary to enable the persons described below in
Section IV.A.12.(a) to determine whether the conditions of this
exemption have been met, except that:
(a) No party in interest with respect to a plan which engages in
the covered transactions, other than the BlackRock Manager, shall be
subject to a civil penalty under ERISA section 502(i) or the taxes
imposed by Code sections 4975(a) and (b), if such records are not
maintained, or not available for examination as required below by
Section IV.A.12.(a); and
(b) A separate prohibited transaction shall not be considered to
have occurred if, due to circumstances beyond the control of the
BlackRock Manager, such records are lost or destroyed prior to the end
of the six-year period.
12. (a) Except as provided below, in Section IV.A.12.(b), and
notwithstanding the provisions of subsections (a)(2) and (b) of ERISA
section 504, the records referred to, above, in Section IV.A.11. are
unconditionally available at their customary location for examination
during normal business hours by:
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the SEC;
(ii) Any fiduciary of any plan that engages in the covered
transactions, or any duly authorized employee or representative of such
fiduciary;
(iii) Any employer of participants and beneficiaries and any
employee organization whose members are covered by a plan that engages
in the covered transactions, or any authorized employee or
representative of these entities; or
(iv) Any participant or beneficiary of a plan that engages in the
covered transactions, or duly authorized employee or representative of
such participant or beneficiary;
(b) None of the persons described in Sections IV.A.12.(a)(ii)
through (iv) shall be authorized to examine trade secrets of the
BlackRock Manager, or commercial or financial information which is
privileged or confidential; and
(c) Should the BlackRock Manager refuse to disclose information on
the basis that such information is exempt from disclosure, pursuant to
Section IV.A.12.(b), the BlackRock Manager shall, by the close of the
thirtieth (30th) day following the request, provide a written notice
advising that person of the reasons for the refusal and that the
Department may request such information.
B. Affiliated Servicing
1. The Securities are CMBS that are rated in one of the three
highest rating categories by a Rating Organization; provided that none
of the Rating Organizations rates such Securities in a category lower
than the third highest rating category.
2. The purchase of the CMBS meets the conditions of an applicable
Underwriter Exemption.
3. (a) The aggregate amount of CMBS of an issue purchased, pursuant
to this exemption, by the BlackRock Manager with:
(i) The assets of all Client Plans; and
(ii) The assets, calculated on a pro rata basis, of all Client
Plans and In-House Plans investing in Pooled Funds managed by the Asset
Manager; and
(iii) The assets of plans to which the Asset Manager renders
investment advice, within the meaning of 29 CFR Sec. 2510.3-21(c), does
not exceed thirty five percent (35%) of the total amount of the CMBS
being offered in an issue.
(b) Notwithstanding the percentage of CMBS of an issue permitted to
be acquired, as set forth in Section IV.B.3.(a) of this exemption, the
amount of CMBS in any issue purchased, pursuant to this exemption, by
the Asset Manager on behalf of any single Client Plan, either
individually or through investment, calculated on a pro rata basis, in
a Pooled Fund may not exceed three percent (3%) of the total amount of
such CMBS being offered in such issue, and;
(c) If purchased in an Eligible Rule 144A Offering, the total
amount of the CMBS being offered for purposes of determining the
percentages described in Section IV.B.3(a), is the total of:
(i) The principal amount of the offering of such class of CMBS sold
by underwriters or members of the selling syndicate to QIBs; plus
(ii) The principal amount of the offering of such class of CMBS in
any concurrent public offering.
4. The aggregate amount to be paid by any single Client Plan in
purchasing any CMBS which are the subject of this exemption, including
any amounts paid by any Client Plan in purchasing such CMBS through a
Pooled Fund, calculated on a pro rata basis, does not exceed three
percent (3%) of the fair market value of the net assets of such Client
Plan, as of the last day of the most recent fiscal quarter of such
Client Plan prior to such transaction.
5. The Covered Transactions under this Section IV.B. are not part
of an agreement, arrangement, or understanding designed to benefit any
MPS.
6. The requirements of Sections IV.A.8. through 12. are met.
SECTION V: CORRECTION PROCEDURES
A. 1. The ECO shall monitor Covered Transactions and shall
determine whether a particular Covered Transaction constitutes a
Violation. The ECO shall notify the IM within five (5) business days
following the discovery of any Violation.
2. The ECO shall make an initial determination as to how to correct
a Violation and place the conclusion of such determination in writing,
with such conclusion disclosed to the IM within five (5) business days
of the placing of the conclusion of such determination in writing.
Following the initial determination, the ECO must keep the IM apprised
on a current basis of the process of correction and must consult with
the IM regarding each Violation and the appropriate form of correction.
The ECO shall report the correction of the Violation to the IM within
five (5) business days following completion of the correction. For
purposes of this Section V.A.2., ``correction'' must be consistent with
[[Page 15099]]
ERISA section 502(i) and Code section 4975(f)(5).
3. The IM shall determinate whether it agrees that the correction
of a Violation by the ECO is adequate and shall place the conclusion of
such determination in writing, and, if the IM does not agree with the
adequacy of the correction, the IM shall have the authority to require
additional corrective actions by BlackRock.
4. A summary of Violations and corrections of Violations will be in
the IM's annual compliance report as described in Section II.E.12.
B. Special Correction Procedure
1. If a Covered Transaction which would otherwise constitute a
Violation is corrected under this ``Special Correction Procedure,''
such Covered Transaction shall continue to be exempt under Section I of
this exemption.
2. (a) The Special Correction Procedure is a complete correction of
the Violation no later than fourteen (14) business days following the
date on which the ECO submits the quarterly report to the IM for the
quarter in which the Covered Transaction first would become a non-
exempt prohibited transaction by reason of constituting a Violation if
not for this Section V.B.
(b) Solely for purposes of the Special Correction Procedure,
``correction'' of a Covered Transaction which would otherwise be a
Violation means either:
(i) Restoring the Client Plan to the position it would have been in
had the conditions of the exemption been complied with;
(ii) Correction consistent with ERISA section 502(i) and Code
section 4975(f)(5); or
(iii) Correction consistent with the Voluntary Fiduciary Correction
Program.\61\
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\61\ PTE 2002-51, 67 FR 70623 (November 25, 2002), as amended,
71 FR 20135 (April 19, 2006).
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(c) Other than with respect to the definition of ``correction''
specified above, when utilizing the Special Correction Procedure the
ECO and the IM shall comply with Section V.A.
SECTION VI: DEFINITIONS \62\
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\62\ The definition of terms herein shall apply equally to the
singular and plural forms of the terms defined. Section headings are
for convenience only.
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A. ``1933 Act'' means the Securities Act of 1933, as amended.
B. ``1934 Act'' or ``Exchange Act'' means the Securities Exchange
Act of 1934, as amended.
C. ``1940 Act'' means the Investment Company Act of 1940, as
amended.
D. ``$50 Million Net Asset Requirement'' shall have the meaning set
forth in Section IV.A.8. of this exemption.
E. ``$100 Million Net Asset Requirement'' shall have the meaning
set forth in Section IV.A.8. of this exemption.
F. ``ABCP Conduit'' means a special purpose vehicle that acquires
assets from one or more originators and issues commercial paper to
provide funding to the originator(s). Such vehicles are typically
administered by a bank, but is not required to be administered by a
bank, which provides liquidity support (standing ready to purchase the
conduit's commercial paper if it cannot be rolled over) and/or credit
support (committing to cover losses in the event of default). The
program administrator also typically acts as placement agent for the
commercial paper, sometimes together with one or more other placement
agents. Commercial paper issued by such a conduit may be purchased
directly from the program administrator or other placement agent, or
traded on the secondary market with another broker-dealer making a
market in the Securities.
G. ``Acquisition'' means the acquisition by BlackRock of Barclays
Global Investors UK Holdings, Ltd. and its subsidiaries on December 1,
2009.
H. ``Affiliate'' of another person means:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such person;
(2) Any officer, director, partner, employee, or relative (as
defined in section 3(15) of ERISA) of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director, partner or employee.
I. ``Asset-Backed Securities'' means Securities which are pass-
through certificates or trust certificates characterized as equity
pursuant to 29 CFR 2510.3-101 that represent a beneficial ownership
interest in the assets of an issuer which is a trust, with any such
trust limited to (1) a single or multi-family residential or commercial
mortgage investment trust, (2) a motor vehicle receivable investment
trust, or (3) a guaranteed governmental mortgage pool certificate
investment trust, and which entitles the holder to payments of
principal, interest and/or other payments made with respect to the
assets of the trust, the corpus or assets of which consist solely or
primarily of secured obligations that bear interest or are purchased at
a discount. For purposes of Section IV.A. of this exemption, Asset-
Backed Securities are treated as debt Securities.
J. ``Authorizing fiduciary'' has the meaning set forth in Section
III.M.4.(d)(i) of this exemption.
K. ``Automated Trading System'' or ``ATS'' means an electronic
trading system, ECN or electronic clearing network or similar venue
that functions in a manner intended to simulate a Securities exchange
by electronically matching orders from multiple buyers and sellers,
such as an ``alternative trading system'' within the meaning of the
SEC's Reg. ATS (17 CFR part 242.300), as such definition may be amended
from time to time, or an ``automated quotation system'' as described in
Section 3(a)(51)(A)(ii) of the 1934 Act.
L. ``B and C List'' has the meaning set forth in Section III.A.1.
of this exemption.
M. ``BlackRock'' means BlackRock, Inc. and any successors thereof.
N. ``BlackRock Entity'' means BlackRock and any entity directly or
indirectly, through one or more intermediaries, under the control of
BlackRock, and any other entity which subsequently becomes directly or
indirectly, through one or more intermediaries, under the Control of
BlackRock, and successors of the foregoing.
O. ``BlackRock Manager'' means any bank, investment advisor,
investment manager directly or indirectly, through one or more
intermediaries, under the control of BlackRock, and any other bank,
investment advisor, or investment manager which subsequently becomes
directly or indirectly, through one or more intermediaries, under the
control of BlackRock, and successors of the foregoing, including but
not limited to BlackRock Advisors, LLC, BlackRock Financial Management,
Inc., BlackRock Capital Management, Inc., BlackRock Institutional
Management Corporation, BlackRock International, Ltd., State Street
Research and Management Company, BlackRock Realty Advisors, Inc.,
BlackRock Investment Management, LLC, BlackRock Fund Advisors, and
BlackRock Institutional Trust Company, N.A. and any of the investment
advisors and investment manager it controls.
P. ``Buy-Up'' means an initial acquisition of Securities issued by
BlackRock by a BlackRock Manager, if such acquisition exceeds one
percent (1%) of the aggregate daily trading volume for such Security,
for an Index Account or Fund, or a Model-Driven Account or Fund which
is necessary to bring the fund's or account's holdings of such
Securities either to its capitalization-weighted or other specified
composition in the relevant
[[Page 15100]]
Index, as determined by the organization maintaining such Index, or to
its correct weighting as determined by the Model.
Q. ``Client Plan'' means any plan subject to ERISA section 406,
Code section 4975 or FERSA section 8477(c) for which a BlackRock
Manager is a fiduciary as described in ERISA section 3(21), including,
but not limited to, any Pooled Fund, MPS Plan, Index Account or Fund,
Model-Driven Account or Fund, Other Account or Fund, or In-House Plan,
except where specified to the contrary.
R. ``CMBS'' means an Asset-Backed Security with respect to which
the assets or corpus of the issuer consist solely or primarily of
obligations secured by commercial real property (including obligations
secured by leasehold interests on commercial real property).
S. ``Code'' means the Internal Revenue Code of 1986, as amended.
T. ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
U. ``Covered Transaction'' means each transaction set forth in
Section III by a BlackRock Manager for a Client Plan with, affecting or
involving, directly or indirectly, an MPS and/or a BlackRock Entity.
V. ``Creation Shares'' means new shares in an ETF created by an
exchange of a specified basket of Securities and/or cash to the ETF for
such new shares of the ETF.
W. ``ECO Function'' means the ECO and such other BlackRock Entity
employees in legal and compliance roles working under the supervision
of the ECO in connection with the Covered Transactions. The list of
BlackRock Entity employees shall be shared with the IM from time to
time, not less than quarterly, and such employees will be made
available to discuss the relevant Covered Transactions with the IM to
the extent the IM or the ECO deem it reasonably prudent.
X. ``Electronic Communications Network'' or ``ECN'' means an
electronic system described in Rule 600(b)(23) of Regulation NMS under
the 1934 Act.
Y. ``Eligible Rule 144A Offering'' shall have the same meaning as
defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4)) under the 1940
Act.
Z. ``Eligible Securities Depository'' means an eligible securities
depository as that term is defined under Rule 17f-7 of the 1940 Act, as
such definition may be amended from time to time.
AA. ``EPP Correction'' has the meaning set forth in Section II.C.
of this exemption.
BB. ``ERISA'' means the Employee Retirement Income Security Act of
1974, as amended.
CC. ``Exemption Compliance Officer'' or ``ECO'' means an officer of
BlackRock or of a BlackRock Entity appointed by BlackRock or such
BlackRock Entity, subject to the approval of the IM, who is responsible
for compliance with the exemption. The ECO, unless otherwise stated in
this exemption, will be responsible for: Monitoring all Covered
Transactions and reviewing compliance with all of the conditions of the
exemption applicable thereto; approving certain Covered Transactions in
advance as required by the terms of the exemption; reviewing reports of
Covered Transactions and the results of sampling of Covered
Transactions; and determining when Covered Transactions transgress the
EPPs and/or constitute a Violation.
DD. ``ETF'' means an exchange-traded open-end investment company
registered under the 1940 Act.
EE. ``Exemption Policies and Procedures'' or ``EPPs'' means the
written policy adopted and implemented by BlackRock for BlackRock
Entities that is reasonably designed to ensure compliance with the
terms of the exemption. The EPPs must reflect the specific requirements
of the exemption, but must also be designed to ensure that the
decisions to enter into Covered Transactions on behalf of Client Plans
with the MPSs is in the interests of Client Plans and their
participants and beneficiaries, including by ensuring to the extent
possible that the terms of each Covered Transaction are at least as
favorable to the Client Plan as the terms generally available in
comparable arm's length transactions with unrelated parties.
FF. ``FERSA'' means the Federal Employees' Retirement System Act of
1986, as amended.
GG. ``FHLMC'' means the Federal Home Loan Mortgage Corporation.
HH. ``Fixed Income Obligations'' means fixed income obligations
including structured debt or other instruments characterized as debt
pursuant to 29 CFR 2510.3-101, including, but not limited to, debt
convertible into equity, certificates of deposit and loans (other than
loans with respect to which an MPS is the entity which acts as lead
lender). Asset-Backed Securities are not Fixed Income Obligations for
purposes of this exemption.
II. ``FNMA'' means the Federal National Mortgage Association.
JJ. ``Foreign Bank'' means an institution that has substantially
similar powers to a bank as defined in section 202(a)(2) of the
Investment Advisers Act, as amended, has as of the last day of its most
recent fiscal year, equity capital which is the equivalent of no less
than $200 million, and is subject to:
(1)(a) Registered and regulated under the laws of the Financial
Services Authority in the United Kingdom, or (b)(i) registered and
regulated by a securities commission of a Province of Canada that is a
member of the Canadian Securities Administration, and (ii) is subject
to the oversight of a Canadian self-regulatory authority; or
(2) Regulation by the relevant governmental banking agency(ies) of
a country other than the United States and the regulation and oversight
of these banking agencies were applicable to a bank that received: (i)
An individual exemption, granted by the Department under section 408(a)
of ERISA, involving the loan of securities by a plan to a bank or (ii)
a final authorization by the Department to engage in an otherwise
prohibited transaction pursuant to PTE 96-62, as amended, involving the
loan of securities by a plan to a bank. On the date this exemption
becomes effective, the following countries shall qualify for purposes
of this clause (ii): United Kingdom, Canada, Germany, Japan, Australia,
Switzerland, France, the Netherlands and Sweden.
KK. ``Foreign Broker-Dealer'' means a broker-dealer that has, as of
the last day of its most recent fiscal year, equity capital that is the
equivalent of no less than $200 million and is:
(1) Registered and regulated under the laws of the Financial
Services Authority in the United Kingdom;
(2) Registered and regulated by a securities commission of a
Province of Canada that is a member of the Canadian Securities
Administration, and is subject to the oversight of a Canadian self-
regulatory authority; or
(3) Registered and regulated under the relevant securities laws of
a governmental entity of a country other than the United States and
such securities laws and regulation were applicable to a broker-dealer
that received: (a) An individual exemption, granted by the Department
under section 408(a) of ERISA, involving the loan of securities by a
plan to a broker-dealer or (b) a final authorization by the Department
to engage in an otherwise prohibited transaction pursuant to PTE 96-62,
as amended, involving the loan of securities by a plan to a broker-
dealer. On the date this exemption becomes effective, the following
countries shall qualify for purposes of this clause (2): United
Kingdom, Canada, Germany,
[[Page 15101]]
Japan, Australia, Switzerland, France, the Netherlands and Sweden.
LL. ``Foreign Collateral'' means:
(1) Securities issued by or guaranteed as to principal and interest
by the following Multilateral Development Banks, the obligations of
which are backed by the participating countries, including the United
States: The International Bank for Reconstruction and Development, the
Inter-American Development Bank, the Asian Development Bank, the
African Development Bank, the European Bank for Reconstruction and
Development and the International Finance Corporation;
(2) Foreign sovereign debt securities provided that at least one
nationally recognized statistical rating organization has rated in one
of its two highest categories either the issue, the issuer or
guarantor;
(3) The British pound, the Canadian dollar, the Swiss franc, the
Japanese yen or the Euro;
(4) Irrevocable letters of credit issued by a Foreign Bank, other
than the borrower or an affiliate thereof, which has a counterparty
rating of investment grade or better as determined by a nationally
recognized statistical rating organization; or
(5) Any type of collateral described in Rule 15c3-3 of the 1934 Act
as amended from time to time provided that the lending fiduciary is a
U.S. Bank or U.S. Broker-Dealer and such fiduciary indemnifies the plan
with respect to the difference, if any, between the replacement cost of
the borrowed Securities and the market value of the collateral on the
date of a borrower default plus interest and any transaction costs
which a plan may incur or suffer directly arising out of a borrower
default. Notwithstanding the foregoing, collateral described in any of
the categories enumerated in section V(e) of PTE 2006-16 will be
considered U.S. Collateral for purposes of the exemption.
MM. ``Foreign Exchange Transaction'' means the exchange of the
currency of one nation for the currency of another nation, or a
contract for such an exchange. The term Foreign Exchange Transaction
includes option contracts on foreign exchange transactions. Foreign
Exchange Transactions may be either ``spot'', ``forward'' or ``split''
depending on the settlement date of the transaction.
NN. ``GNMA'' means the Government National Mortgage Association.
OO. ``Independent Monitor'' or ``IM'' means an individual or entity
appointed by BlackRock to carry out certain functions set forth in
Sections II, III and V of the exemption and who (or which), given the
number of types of Covered Transactions and the number of actual
individual Covered Transactions potentially covered by the exemption,
must be knowledgeable and experienced with respect to each Covered
Transaction and able to demonstrate sophistication in relevant markets,
instruments and trading techniques relative thereto, and, in addition,
must understand and accept in writing its duties and responsibilities
under ERISA and the exemption with respect to the Client Plans. The IM
must be independent of and unrelated to BlackRock and any MPS. For
purposes of this exemption, such individual or entity will not be
deemed to be independent of and unrelated to BlackRock and the MPSs if:
(1) Such individual or entity directly or indirectly controls, is
controlled by, or is under common control with BlackRock or an MPS;
(2) Such individual or entity, or any employee thereof performing
services in connection with this exemption, or an officer, director,
partner, or highly compensated employee (as defined in Code section
4975(e)(2)(H)) thereof, is an officer, director, partner or highly
compensated employee (as defined in Code section 4975(e)(2)(H)) of
BlackRock or an MPS; or any member of the business segment performing
services in connection with this exemption is a relative of an officer,
director, partner or highly compensated employee (as defined in Code
section 4975(e)(2)(H)) of BlackRock or an MPS.
However, if an individual is a director of the IM and an officer,
director, partner or highly compensated employee (as defined in Code
section 4975(e)(2)(H)) of BlackRock or an MPS, and if he or she
abstains from participation in any of the services performed by the IM
under this exemption, then this Section VI.OO.(2) shall not apply.
For purposes of this Subsection, the term officer means a
president, any senior vice president in charge of a principal business
unit, division or function (such as sales, administration, or finance),
or any other officer who performs a policy-making function for the IM,
BlackRock, or an MPS.
(3) The IM directly or indirectly receives any compensation or
other consideration for the IM's personal account in connection with
any Covered Transaction, except that the IM may receive compensation
from BlackRock for acting as IM as contemplated herein if the amount or
payment of such compensation is reasonable and not contingent upon or
in any way affected by any decision made by the IM while acting as IM;
or
(4) The annual gross revenue received by the IM, during any year of
its engagement, from the MPSs and BlackRock Entities for all services
exceeds the greater of (a) five percent (5%) of the IM's annual gross
revenue from all sources for its prior tax year, or, (b) one percent
(1%) of the annual gross revenue of the IM and its majority shareholder
from all sources for their prior tax year.
PP. ``Index'' means an equity or debt Securities or commodities
index that represents the investment performance of a specific segment
of the market for equity or debt Securities or commodities in the
United States and/or an individual foreign country or any collection of
foreign countries, but only if--
(1) The organization creating and maintaining the index is:
(a) Engaged in the business of providing financial information,
evaluation, advice or Securities brokerage services to institutional
clients,
(b) A publisher of financial news or information, or
(c) A public Securities exchange or association of Securities
dealers; and
(2) The index is created and maintained by an organization
independent of all BlackRock Entities. For purposes of this definition
of ``Index,'' every BlackRock Entity is deemed to be independent of
every MPS.
(3) The index is a generally accepted standardized index of
Securities or commodities which is not specifically tailored for the
use of a BlackRock Manager(s).
(4) If the organization creating, providing or maintaining the
Index is an MPS:
(a) Such Index must be widely-used in the market by independent
institutional investors other than pursuant to an investment management
or advisory relationship with a BlackRock Manager, and must be prepared
or applied by such MPS in the same manner as for customers other than a
BlackRock Manager(s);
(b) BlackRock must certify to the ECO whether, in its reasonable
judgment, such Index is widely-used in the market. In making this
determination, BlackRock shall take into consideration factors such as
(i) publication of summary Index information by the MPS providing the
Index, Bloomberg, Reuters, or a similar institution involved in the
dissemination of financial information, and (ii) delivery of Index
information including but not limited to
[[Page 15102]]
Index component information by such MPS to clients or other subscribers
including by electronic means including via the internet;
(c) BlackRock must notify the ECO if it becomes aware that: (i)
Such Index is operated other than in accordance with objective rules,
in the ordinary course of business, (ii) manipulation of any such Index
has occurred for the purpose of benefiting BlackRock, or (iii) in the
event that any rule change occurred in connection with the rules
underlying such Index, such rule change was made by the MPS for the
purpose of benefiting BlackRock; provided, however, this Subsection
(c)(iii) expressly excludes instances where the rule changes were made
in response to requests from clients/prospective clients of BlackRock
even if BlackRock is ultimately hired to manage such a portfolio (e.g.,
if plan sponsor X requests a ``Global ex-Sudan Fixed Income Index'', an
MPS decides to sponsor such index and plan sponsor X approaches
BlackRock or otherwise issues a ``Request for Proposal'' for investment
managers who could manage an index portfolio benchmarked to the Global
ex-Sudan Fixed Income Index).
(d) BlackRock must certify to the ECO annually that it is not aware
of the occurrence of any of the events described in Section
VI.PP.(4)(c), and if BlackRock cannot so certify, or if BlackRock
provides the ECO with the notice described Section VI.PP.(4)(c), the
ECO shall notify the IM, and the IM must take appropriate remedial
action which may include, but need not be limited to, instructions for
relevant BlackRock Managers to cease using such Index.
QQ. ``Index Account or Fund'' means any investment fund, account or
portfolio sponsored, maintained, trusteed, or managed by a BlackRock
Manager or a BlackRock Entity, in which one or more Client Plans
invest, and--
(1) Which is designed to track the rate of return, risk profile and
other characteristics of an Index by either (i) replicating the same
combination of Securities or commodities which compose such Index or
(ii) sampling the Securities or commodities which compose such Index
based on objective criteria and data;
(2) For which the BlackRock Manager does not use its discretion, or
data within its control, to affect the identity or amount of Securities
or commodities to be purchased or sold;
(3) That contains ``plan assets'' subject to either ERISA section
406, Code section 4975 or FERSA section 8477(c); and,
(4) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Index Account or Fund which is
intended to benefit a BlackRock Entity or an MPS, or any party in which
a BlackRock Entity or an MPS may have an interest.
For purposes of this definition of ``Index Account or Fund'', every
BlackRock Entity is deemed to be independent of each MPS.
RR. ``In-House Plan'' means an employee benefit plan that is
subject to ERISA section 406 and/or Code section 4975, and that is
sponsored by a BlackRock Entity for its employees.
SS. ``Interbank Rate'' means the interbank bid and asked rate for
foreign exchange transactions of comparable size and maturity at the
time of the transaction as quoted on a nationally recognized service
for facilitating foreign currency trades between large commercial banks
and Securities dealers.
TT. ``Know'' means to have actual knowledge. BlackRock Managers
will be deemed to have actual knowledge of information set forth in a
written agreement or offering document as of the date the BlackRock
Manager receives such agreement or document.
UU. ``Model'' means a computer model that is based on prescribed
objective criteria using independent data not within the control of a
BlackRock Entity to transform an Index.
VV. ``Model-Driven Account or Fund'' means any investment fund,
account or portfolio sponsored, maintained, trusteed, or managed by a
BlackRock Manager or a BlackRock Entity in which one or more Client
Plans invest, and--
(1) Which is composed of Securities or commodities the identity of
which and the amount of which are selected by a Model;
(2) That contains ``plan assets'' subject to either ERISA section
406, Code section 4975 or FERSA section 8477(c); and
(3) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Model-Driven Account or Fund
or the utilization of any specific objective criteria which is intended
to benefit a BlackRock Entity or an MPS, or any party in which a
BlackRock Entity or an MPS may have an interest.
For purposes of this definition of ``Model-Driven Account or
Fund,'' every BlackRock Entity is deemed to be independent of each MPS.
WW. ``MPS'' or ``Minority Passive Shareholder'' means (1) Barclays
PLC, (2) Bank of America Corporation, (3) The PNC Financial Services
Group, Inc., or (4) each entity directly or indirectly, through one or
more intermediaries, controlling, controlled by or under common control
with one or more of Barclays PLC (Barclays MPSs), Bank of America
Corporation (BOA MPSs) or The PNC Financial Services Group, Inc., (PNC
MPSs) (each of the PNC MPSs, Barclays MPSs, and the BOA MPSs, an MPS
Group) but excluding any and all BlackRock Entities. Bank of America
Corporation and any entity directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
Bank of America Corporation (collectively, the BOA Group) shall cease
to be an MPS on the day after the number of representatives of the BOA
Group on the BlackRock Board of Directors is reduced to one (1).
XX. ``MPS Group'' shall have the meaning set forth in the
definition of MPS.
YY. ``MPS Plans'' means an employee benefit plan(s) that is subject
to ERISA section 406 and/or Code section 4975, and that is sponsored by
an MPS for its employees.
ZZ. ``Other Account or Fund'' means any investment fund, account or
portfolio sponsored, maintained, trusteed, or managed by a BlackRock
Manager or a BlackRock Entity in which one or more Client Plans invest,
and--
(1) Which is not an Index Account or Fund or a Model-Driven Account
or Fund; and
(2) That contains ``plan assets'' subject to either ERISA section
406, Code section 4975 or FERSA section 8477(c).
AAA. ``Pooled Fund'' means a common or collective trust fund or
other pooled investment fund:
(1) In which Client Plan(s) invest;
(2) For which a BlackRock Manager exercises discretionary authority
or discretionary control respecting the management or disposition of
the assets of such fund(s); and
(3) That contains ``plan assets'' subject to either ERISA section
406, Code section 4975 or FERSA section 8477(c).
Solely for purposes of Section IV of this exemption, ``Pooled
Fund(s)'' shall only include funds or trusts which otherwise meet this
definition but which also are either (i) maintained by a BlackRock
Entity or (ii) maintained by a person which is not a BlackRock Entity
but is sub-advised by a BlackRock Manager, provided that with respect
to a Pooled Fund described in (ii), (A) the fund or trust is either a
bank-maintained common or collective trust fund or an insurance company
pooled separate account that holds assets of at least $250 million, (B)
the bank or insurance company sponsoring the pooled fund
[[Page 15103]]
has total client assets under its management or control in excess of $5
billion as of the last day of its most recent fiscal year, and
shareholders' or partners' equity in excess of $1 million, and (C) the
decision to invest the Client Plan into the bank-maintained common or
collective trust or insurance company pooled separate account and to
maintain such investment is made by a Client Plan fiduciary which is
not a BlackRock Entity. Such sub-advised Pooled Funds are sometimes
referred to herein as ``Sub-Advised Pooled Funds''.
BBB. ``QPAM Exemption'' or ``PTE 84-14'' means Prohibited
Transaction Exemption 84-14, as amended.
CCC. ``Qualified Professional Asset Manager'' or ``QPAM'' shall
have the meaning set forth in Section VI(a) of the QPAM Exemption.
DDD. ``Qualified Institutional Buyer'' or ``QIB'' shall have the
same meaning as defined in SEC Rule 144A (17 CFR 230.144A(a)(1)) under
the 1933 Act.
EEE. ``Rating Organizations'' means Standard & Poor's Rating
Services, Moody's Investors Service, Inc., Fitch Ratings Inc., DBRS
Limited, DBRS, Inc., or any successors thereto.
FFF. ``Recognized Securities Exchange'' means a U.S. securities
exchange that is registered as a ``national securities exchange'' under
section 6 of the 1934 Act, or a designated offshore securities market,
as defined in Regulation S of the SEC (17 CFR 230.902(b)), as such
definition may be amended from time to time, which performs with
respect to Securities the functions commonly performed by a stock
exchange within the meaning of definitions under the applicable
Securities laws (e.g., 17 CFR 240.3b-16).
GGG. ``SEC'' means the United States Securities and Exchange
Commission.
HHH. ``Securities'' shall have the same meaning as defined in
section 2(36) of the 1940 Act. For purposes of Section IV of this
exemption, except as where specifically identified, Asset-Backed
Securities are treated as debt Securities.
III. ``Special Notice'' shall have the meaning set forth in Section
II.F. of this exemption.
JJJ. ``Three Quote Process'' means three bids or offers (either of
which being sometimes referred to as quotes) are received by a trader
for a BlackRock Manager each of which such quotes such trader
reasonably believes is an indication that the dealer presenting the bid
or offer is willing to transact the trade at the stipulated volume
under discussion, and all material terms (including volume) under
discussion are materially similar with respect to each other such
quote. In selecting the best of three such quotes, a BlackRock Manager
shall maintain books and records for the three firm bids/offers in a
convention that it reasonably believes is customary for the specific
asset class (such as ``price'' quotes, ``yield'' quotes or ``spread''
quotes). For example, corporate bonds are often quoted on a spread
basis and dealers customarily quote the spread above a certain
benchmark bond's yield (e.g., for a given size and direction such as a
BlackRock trader may ask for quotes to sell $1 million of a particular
bond, dealer 1 may quote 50 bps above the yield of the 10 year treasury
bond, dealer 2 might quote 52 bps above the yield of the 10 year
treasury bond and dealer 3 might quote 53 bps above the yield of the 10
year treasury bond). If only two firm bids/offers can be obtained, the
trade requires prior approval by the ECO and the ECO must inquire as to
why three firm bids/offers could not be obtained. If in the case of a
sale or purchase a trader for a BlackRock Manager reasonably believes
it would be injurious to the Client Plan to specify the size of the
intended trade to certain bidders, a bid on a portion of the intended
trade may be treated as a firm bid if the trader documents (i) why the
bid price is a realistic indication of the economic terms for the
actual amount being traded despite the difference in the size of the
actual trade and (ii) why it would be harmful to the Client Plan to
solicit multiple bids on the actual amount of the trade. If a trader
for a BlackRock Manager solicits bids from three or more dealers on a
sale or purchase of a certain volume of Securities, and receives back
three or more bids, but at least one bid is not for the full amount of
the intended sale, if the price offered by the partial bidder(s) is
less than the price offered by the full bidder(s), the trader may
assume a full bid by the partial bidder(s) would not be the best bid,
and the trader can consummate the trade, in the case of at least two
full bids, with the dealer making the better of the full bids, or in
the case of only one full bid, with the dealer making that full bid.
KKK. ``Type A Transactions'' means transactions between BlackRock
Managers on behalf of Client Plans with MPSs which (i) are or were
continuing transactions within the meaning of section VI(i) of PTE 84-
14 and/or section IV(h) of PTE 91-38 in existence on the date of the
Acquisition, and (ii) pursuant to which there is no discretion on the
part of either party, other than the ability of the BlackRock Manager
to sell or otherwise transfer the Client Plan's position to a third
party, or the ability of the MPS to sell or otherwise transfer its
position to a third party, or the ability of the MPS to otherwise
terminate the transaction on previously specified terms.
LLL. ``Type B Covered Transactions'' means transactions which meet
the criteria to be Type A Transactions but which possess the additional
feature that the BlackRock Manager, on behalf of a Client Plan, has the
option to terminate the transaction with the MPS on previously
specified terms.
MMM. ``Type C Covered Transactions'' means transactions which meet
the criteria to be Type B Covered Transactions but which possess the
additional feature that the BlackRock Manager may terminate or modify
the transaction on behalf of a Client Plan under certain circumstances,
but only with negotiation and/or payment of consideration to the MPS or
to the Client Plan which was not predetermined.
NNN. ``Underwriter Exemption(s)'' means a group of individual
exemptions granted by the Department to provide relief for the
origination and operation of certain asset pool investment trusts and
the acquisition, holding and disposition by plans of Asset-Backed
Securities representing undivided interests in those trusts. Such group
of individual exemptions was collectively amended by PTE 2009-31, 74 FR
59001 (Nov. 16, 2009).
OOO. ``Unwind Period'' shall have the meaning set forth in Section
II.A.3.(b) of this exemption.
PPP. ``Unwind Period 2'' shall have the meaning set forth in
Section III.W. of this exemption.
QQQ. ``U.S. Bank'' means a bank as defined in section 202(a)(2) of
the Investment Advisers Act, as amended.
RRR. ``U.S. Broker-Dealer'' means a broker-dealer registered under
the 1934 Act or exempted from registration under section 15(a)(1) of
the 1934 Act as a dealer in exempted government Securities (as defined
in section 3(a)(12) of the 1934 Act).
SSS. ``U.S. Collateral'' means:
(1) U.S. currency;
(2) ``Government securities'' as defined in section 3(a)(42)(A) and
(B) of the 1934 Act;
(3) ``Government securities'' as defined in section 3(a)(42)(C) of
the 1934 Act issued or guaranteed as to principal or interest by the
following corporations: The Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Student Loan Marketing
Association and the Financing Corporation;
(4) Mortgage-backed Securities meeting the definition of a
``mortgage related security'' set forth in section 3(a)(41) of the 1934
Act;
[[Page 15104]]
(5) Negotiable certificates of deposit and bankers acceptances
issued by a ``bank'' as that term is defined in section 3(a)(6) of the
1934 Act, and which are payable in the United States and deemed to have
a ``ready market'' as that term is defined in 17 CFR 240.15c3-1; or
(6) Irrevocable letters of credit issued by a U.S. Bank other than
the borrower or an affiliate thereof, or any combination, thereof.
TTT. ``Violation'' means a Covered Transaction which is a
prohibited transaction under section 406 or 407 of ERISA, Code section
4975, or FERSA section 8477(c) and which is not exempt by reason of a
failure to comply with this exemption or another administrative or
statutory exemption. To the extent that the non-exempt prohibited
transaction relates to an act or omission that is separate and distinct
from a prior otherwise exempt transaction that may relate to the same
asset (e.g., a conversion of a debt instrument into an equity
instrument or a creditor's committee for a debt instrument), the
Violation occurs only at the current point in time and no Violation
shall be deemed to occur for the earlier transaction relating to the
same asset (e.g., the initial purchase of the asset) that was otherwise
in compliance with ERISA, the Code or FERSA.
Effective Date: This exemption is effective as of December 1, 2009;
notwithstanding the foregoing, this exemption ceases to be available
with respect to the BOA Group on the day after the number of
representatives of the BOA Group on the BlackRock Board of Directors is
reduced to one (1).
Signed at Washington, DC, this 9th day of March--------, 2011.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2011-6044 Filed 3-17-11; 8:45 am]
BILLING CODE 4510-29-P